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

Neste Oyj's (HEL:NESTE) dividend will be increasing from last year's payment of the same period to €0.51 on 6th of October. Although the dividend is now higher, the yield is only 2.5%, which is below the industry average.

See our latest analysis for Neste Oyj

Neste Oyj's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Neste Oyj's dividend was only 53% of earnings, however it was paying out 269% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 65.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.

Neste Oyj Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was €0.117, compared to the most recent full-year 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. Neste Oyj has seen EPS rising for the last five years, at 7.0% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Neste Oyj's Dividend

Overall, we always like to see the dividend being raised, but we don't think Neste Oyj will make a great income stock. While Neste Oyj is earning enough to cover the payments, the cash flows are lacking. 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. For instance, we've picked out 2 warning signs for Neste Oyj that investors should take into consideration. 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.