Metsä Board Oyj (HEL:METSB) Has Announced That Its Dividend Will Be Reduced To €0.25

Metsä Board Oyj (HEL:METSB) is reducing its dividend from last year's comparable payment to €0.25 on the 9th of April. This means that the annual payment will be 3.4% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Metsä Board Oyj

Metsä Board Oyj's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Metsä Board Oyj was paying out 94% of earnings, but a comparatively small 71% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 33% which is fairly sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €0.06 in 2014, and the most recent fiscal year payment was €0.25. This means that it has been growing its distributions at 15% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Metsä Board Oyj's EPS has fallen by approximately 14% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for Metsä Board Oyj that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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