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

Sampo Oyj's (HEL:SAMPO) dividend will be increasing to €4.10 on 31st of May. This makes the dividend yield 8.8%, which is above the industry average.

See our latest analysis for Sampo Oyj

Sampo Oyj Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Sampo Oyj's dividend was only 45% of earnings, however it was paying out 95% 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.

Over the next year, EPS is forecast to fall by 41.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 142%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was €1.15 in 2012, and the most recent fiscal year payment was €2.10. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sampo Oyj might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

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. Sampo Oyj has impressed us by growing EPS at 10% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Sampo Oyj will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Sampo Oyj (1 is concerning!) that you should be aware of before investing. 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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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.