Huhtamäki Oyj (HEL:HUH1V) Is Increasing Its Dividend To €0.47

Huhtamäki Oyj (HEL:HUH1V) will increase its dividend on the 6th of May to €0.47. This takes the dividend yield to 3.0%, which shareholders will be pleased with.

View our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Huhtamäki Oyj was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 21.2%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Huhtamäki Oyj Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from €0.46 in 2012 to the most recent annual payment of €0.94. This means that it has been growing its distributions at 7.4% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Huhtamäki Oyj May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Huhtamäki Oyj hasn't seen much change in its earnings per share over the last five years. Growth of 1.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Huhtamäki Oyj's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Huhtamäki Oyj is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Huhtamäki Oyj you should be aware of, and 1 of them is a bit unpleasant. 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.