Kesko Oyj's (HEL:KESKOB) Dividend Will Be Reduced To €0.22

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 yield is still above the industry average at 4.6%.

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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, Kesko Oyj's dividend made up quite a large proportion of earnings but only 69% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to grow by 46.5% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76% - on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Kesko Oyj

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was €0.35, compared to the most recent full-year payment of €0.90. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Kesko Oyj might have put its house in order since then, but we remain cautious.

Kesko Oyj May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.9% per year. Kesko Oyj's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Kesko Oyj's Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Taking the debate a bit further, we've identified 1 warning sign for Kesko Oyj that investors need to be conscious of moving forward. 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.