Huhtamäki Oyj (HEL:HUH1V) Will Pay A Larger Dividend Than Last Year At €0.47

Huhtamäki Oyj's (HEL:HUH1V) dividend will be increasing to €0.47 on 6th of May. This takes the dividend yield from 2.7% to 4.1%, which shareholders will be pleased with.

View our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it 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. 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 19.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 66% 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 means that it has been growing its distributions at 7.4% 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.

Huhtamäki Oyj May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Huhtamäki Oyj's EPS was effectively flat over the past five years, which could stop the company from paying more every year. 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.

In Summary

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. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Huhtamäki Oyj (1 is potentially serious!) that you should be aware of before investing. 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.