Neste Oyj's (HEL:NESTE) Upcoming Dividend Will Be Larger Than Last Year's

Neste Oyj (HEL:NESTE) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of October to €0.51. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.

Check out our latest analysis for Neste Oyj

Neste Oyj's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Neste Oyj's dividend was only 53% of earnings, however it was paying out 269% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 60.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

Neste Oyj Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of €0.117 in 2013 to the most recent total annual payment of €1.02. This means that it has been growing its distributions at 24% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

We Could See Neste Oyj's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Neste Oyj has been growing its earnings per share at 7.0% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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 Neste Oyj is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Neste Oyj that investors need to be conscious of moving forward. Is Neste 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.