Huhtamäki Oyj (HEL:HUH1V) Is Paying Out A Larger Dividend Than Last Year

Huhtamäki Oyj (HEL:HUH1V) has announced that it will be increasing its dividend from last year's comparable payment on the 9th of October to €0.50. This makes the dividend yield about the same as the industry average at 3.1%.

Check out our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Payment Has Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 116% of 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.

Looking forward, earnings per share is forecast to rise by 18.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.

Huhtamäki Oyj Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.56 in 2013, and the most recent fiscal year payment was €1.00. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% 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.

Huhtamäki Oyj Could Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Huhtamäki Oyj has seen EPS rising for the last five years, at 6.4% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

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 instance, we've picked out 2 warning signs for Huhtamäki Oyj that investors should take into consideration. 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.