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

Huhtamäki Oyj (HEL:HUH1V) has announced that it will be increasing its dividend on the 10th of October to €0.47. This makes the dividend yield about the same as the industry average at 2.5%.

See our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, Huhtamäki Oyj was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to expand by 18.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.

Huhtamäki Oyj Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the first annual payment was €0.46, compared to the most recent full-year payment of €0.94. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, Huhtamäki Oyj has only grown its earnings per share at 2.6% per annum over the past five years. The company has been growing at a pretty soft 2.6% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On Huhtamäki Oyj's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Huhtamäki Oyj's payments are rock solid. While Huhtamäki Oyj is earning enough to cover the payments, the cash flows are lacking. We don't think Huhtamäki Oyj is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for Huhtamäki Oyj that investors should know about before committing capital to this stock. 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.