Huhtamäki Oyj's (HEL:HUH1V) Shareholders Will Receive A Bigger 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 10th of October to €0.47. The payment will take the dividend yield to 2.8%, which is in line with the average for the industry.

Check out our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Huhtamäki Oyj's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 27.2%. 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 been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from €0.46 total annually to €0.94. This means that it has been growing its distributions at 7.4% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Huhtamäki Oyj May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Huhtamäki Oyj has only grown its earnings per share at 3.5% per annum over the past five years. The company has been growing at a pretty soft 3.5% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

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 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.