Terveystalo Oyj (HEL:TTALO) Will Pay A Dividend Of €0.15

The board of Terveystalo Oyj (HEL:TTALO) has announced that it will pay a dividend on the 16th of October, with investors receiving €0.15 per share. This takes the dividend yield to 3.5%, which shareholders will be pleased with.

Check out our latest analysis for Terveystalo Oyj

Terveystalo Oyj Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. While Terveystalo Oyj is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

EPS is forecast to rise very quickly over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 125%, which is unsustainable.

Terveystalo Oyj's Dividend Has Lacked Consistency

It's comforting to see that Terveystalo Oyj has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2018, the annual payment back then was €0.06, compared to the most recent full-year payment of €0.30. This means that it has been growing its distributions at 31% per annum over that time. Terveystalo 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 Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Terveystalo Oyj's earnings per share has shrunk at 25% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Terveystalo Oyj's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Terveystalo Oyj's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Terveystalo Oyj is a great stock to add to your portfolio if income is your focus.

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 example, we've picked out 2 warning signs for Terveystalo Oyj that investors should know about before committing capital to this stock. 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.

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