Sampo Oyj's (HEL:SAMPO) Upcoming Dividend Will Be Larger Than Last Year's

Sampo Oyj (HEL:SAMPO) has announced that it will be increasing its dividend on the 31st of May to €4.10. This makes the dividend yield 9.3%, which is above the industry average.

View our latest analysis for Sampo Oyj

Sampo Oyj Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the dividend made up 78% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Earnings per share is forecast to rise by 147.5% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 122%, which is a bit high and could start applying pressure to the balance sheet.

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 dividend has gone from €1.15 to €4.10. This means that it has been growing its distributions at 14% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

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 earnings per share has shrunk at 14% 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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 track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've identified 3 warning signs for Sampo Oyj (1 is a bit concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.