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 makes the dividend yield 8.8%, which is above the industry average.

Check out our latest analysis for Sampo Oyj

Sampo Oyj Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Sampo Oyj was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. The business is earning enough to make the dividend feasible, but the cash payout ratio of 95% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to fall by 41.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 140%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was €1.15, compared to the most recent full-year payment of €2.10. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. 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 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. We are encouraged to see that Sampo Oyj has grown earnings per share at 10% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Sampo Oyj's Dividend

Overall, we always like to see the dividend being raised, but we don't think Sampo Oyj will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Sampo Oyj has been making. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Sampo Oyj has 2 warning signs (and 1 which is concerning) we think you should know about. 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.