The board of Harvia Oyj (HEL:HARVIA) has announced that it will be paying its dividend of €0.30 on the 25th of October, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 5.6%, providing a nice boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Harvia Oyj's stock price has reduced by 48% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Harvia Oyj's Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Harvia Oyj's dividend was only 34% of earnings, however it was paying out 275% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.
Over the next year, EPS is forecast to fall by 17.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 50%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Harvia Oyj Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2018, the dividend has gone from €0.36 total annually to €0.79. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Harvia Oyj has been growing its earnings per share at 38% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Our Thoughts On Harvia Oyj's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Harvia Oyj's payments are rock solid. While Harvia Oyj is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Harvia Oyj you should be aware of, and 2 of them are concerning. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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Harvia Oyj, through its subsidiaries, manufactures and distributes traditional, steam, and infrared saunas.
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Excellent balance sheet and good value.