Kesko Oyj's (HEL:KESKOB) Dividend Will Be Increased To €0.27

The board of Kesko Oyj (HEL:KESKOB) has announced that it will be paying its dividend of €0.27 on the 19th of December, an increased payment from last year's comparable dividend. This will take the annual payment to 7.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Kesko Oyj

Kesko Oyj's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Kesko Oyj's dividend made up quite a large proportion of earnings but only 45% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 5.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 87%, which is on the higher side, but certainly still feasible.

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. Since 2013, the annual payment back then was €0.30, compared to the most recent full-year payment of €1.08. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Kesko Oyj has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Kesko Oyj's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Kesko Oyj has been growing its earnings per share at 19% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Kesko Oyj's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Kesko Oyj that investors should know about before committing capital to this stock. 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.