Suominen Oyj (HEL:SUY1V) Has Re-Affirmed Its Dividend Of €0.20

Suominen Oyj (HEL:SUY1V) will pay a dividend of €0.20 on the 7th of April. The dividend yield will be 5.4% based on this payment which is still above the industry average.

See our latest analysis for Suominen Oyj

Suominen Oyj's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Suominen Oyj's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Over the next year, EPS is forecast to fall by 33.2%. If recent patterns in the dividend continue, we could see the payout ratio reaching 83% in the next 12 months, which is on the higher end of the range we would say is sustainable.

Suominen Oyj's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the first annual payment was €0.05, compared to the most recent full-year payment of €0.20. This means that it has been growing its distributions at 22% per annum over that time. Suominen 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 May Be Hard To Achieve

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. However, Suominen Oyj has only grown its earnings per share at 4.3% per annum over the past five years. Growth of 4.3% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Suominen Oyj's payments, as there could be some issues with sustaining them into the future. While Suominen Oyj is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Suominen Oyj that investors need to be conscious of moving forward. 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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