Huhtamäki Oyj's (HEL:HUH1V) Upcoming Dividend Will Be Larger Than Last Year's

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. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

Check out our latest analysis for Huhtamäki Oyj

Huhtamäki Oyj's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Huhtamäki Oyj was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 31.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 2013, the annual payment back then was €0.56, compared to the most recent full-year payment of €1.00. This means that it has been growing its distributions at 6.0% 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

Investors could be attracted to the stock based on the quality of its payment history. However, Huhtamäki Oyj has only grown its earnings per share at 3.1% per annum over the past five years. Huhtamäki Oyj is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

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. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Huhtamäki Oyj that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of 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.