Kesko Oyj's (HEL:KESKOB) Dividend Will Be Reduced To €0.26

Kesko Oyj's (HEL:KESKOB) dividend is being reduced from last year's payment covering the same period to €0.26 on the 8th of April. The dividend yield of 5.7% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Kesko Oyj

Kesko Oyj's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Kesko Oyj's dividend made up quite a large proportion of earnings but only 40% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to grow by 5.5% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 91% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.30 in 2014, and the most recent fiscal year payment was €1.02. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. 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.

Dividend Growth Could Be Constrained

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 18% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

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. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Kesko Oyj that investors should take into consideration. Is Kesko Oyj not quite the opportunity you were looking for? Why not check out our selection of top 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.