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 takes the annual payment to 3.0% of the current stock price, which is about average for the industry.

View our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Huhtamäki Oyj's dividend was only 40% of earnings, however it was paying out 116% of free 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.

Over the next year, EPS is forecast to expand by 14.7%. If the dividend continues on this path, the payout ratio could be 37% 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 an annual total of €0.56 in 2013 to the most recent total annual payment of €1.00. This means that it has been growing its distributions at 6.0% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Huhtamäki Oyj has been growing its earnings per share at 6.4% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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 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 2 warning signs for Huhtamäki Oyj that investors should know about before committing capital to this stock. 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.