Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Metsä Board Oyj (HEL:METSB) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 26th of March, you won't be eligible to receive this dividend, when it is paid on the 7th of April.
Metsä Board Oyj's next dividend payment will be €0.26 per share, and in the last 12 months, the company paid a total of €0.26 per share. Based on the last year's worth of payments, Metsä Board Oyj has a trailing yield of 2.7% on the current stock price of €9.79. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Metsä Board Oyj can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Metsä Board Oyj is paying out an acceptable 54% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Metsä Board Oyj generated enough free cash flow to afford its dividend. Over the last year it paid out 56% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Metsä Board Oyj earnings per share are up 4.0% per annum over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, eight years ago, Metsä Board Oyj has lifted its dividend by approximately 20% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Metsä Board Oyj worth buying for its dividend? Earnings per share have been growing modestly and Metsä Board Oyj paid out a bit over half of its earnings and free cash flow last year. To summarise, Metsä Board Oyj looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into Metsä Board Oyj, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 1 warning sign with Metsä Board Oyj and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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