Sampo Oyj (HEL:SAMPO) Is Increasing Its Dividend To €4.10

Sampo Oyj (HEL:SAMPO) will increase its dividend on the 31st of May to €4.10. This will take the annual payment from 4.8% to 9.4% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Sampo Oyj

Sampo Oyj Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 132% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 40%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next 12 months is set to see EPS grow by 144.0%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 122% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from €1.15 in 2012 to the most recent annual payment of €2.10. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Sampo Oyj's EPS has fallen by approximately 14% per year during 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.

Sampo Oyj's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Sampo Oyj you should be aware of, and 1 of them shouldn't be ignored. Is Sampo Oyj not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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