Huhtamäki Oyj (HEL:HUH1V) Passed Our Checks, And It's About To Pay A €0.52 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Huhtamäki Oyj (HEL:HUH1V) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Huhtamäki Oyj's shares on or after the 30th of September will not receive the dividend, which will be paid on the 8th of October.

The company's next dividend payment will be €0.52 per share. Last year, in total, the company distributed €1.05 to shareholders. Calculating the last year's worth of payments shows that Huhtamäki Oyj has a trailing yield of 3.0% on the current share price of €35.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Huhtamäki Oyj

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Huhtamäki Oyj paid out a comfortable 47% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 43% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Huhtamäki Oyj's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Huhtamäki Oyj, with earnings per share up 8.3% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Huhtamäki Oyj has lifted its dividend by approximately 6.3% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Huhtamäki Oyj? Earnings per share growth has been growing somewhat, and Huhtamäki Oyj is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Huhtamäki Oyj is halfway there. It's a promising combination that should mark this company worthy of closer attention.

So while Huhtamäki Oyj looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Huhtamäki Oyj that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.