Kesko Oyj (HEL:KESKOB) Is Increasing Its Dividend To €0.27

Kesko Oyj (HEL:KESKOB) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of December to €0.27. This will take the annual payment to 6.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Kesko Oyj

Kesko Oyj's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Kesko Oyj was paying out a very large proportion of what it was earning and 108% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Earnings per share is forecast to rise by 2.3% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €0.30 in 2013 to the most recent total annual payment of €1.08. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Kesko Oyj Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kesko Oyj has impressed us by growing EPS at 22% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Kesko Oyj hasn't been doing.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Kesko Oyj's payments are rock solid. Strong earnings growth means Kesko Oyj has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

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. For instance, we've picked out 1 warning sign for Kesko Oyj that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.