Kesko Oyj (HEL:KESKOB) Will Pay A Smaller Dividend Than Last Year

Kesko Oyj's (HEL:KESKOB) dividend is being reduced from last year's payment covering the same period to €0.22 on the 22nd of July. The dividend yield of 4.4% is still a nice boost to shareholder returns, despite the cut.

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Kesko Oyj's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 98% of what it was earning and 84% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise by 45.9% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for Kesko Oyj

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was €0.375 in 2015, and the most recent fiscal year payment was €0.90. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Kesko Oyj May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Kesko Oyj's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The earnings growth is anaemic, and the company is paying out 98% of its profit. This gives limited room for the company to raise the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Kesko Oyj is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Kesko Oyj that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.