Stock Analysis

Neste Oyj (HEL:NESTE) Is Increasing Its Dividend To €0.51

  •  Updated
Source: Shutterstock

The board of Neste Oyj (HEL:NESTE) has announced that it will be paying its dividend of €0.51 on the 6th of October, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

View our latest analysis for Neste Oyj

Neste Oyj's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Neste Oyj's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 31.2%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

HLSE:NESTE Historic Dividend March 31st 2023

Neste Oyj Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from €0.117 total annually to €1.02. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Neste Oyj has seen EPS rising for the last five years, at 16% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Neste Oyj's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Neste Oyj's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Neste Oyj (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether Neste Oyj is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis