UPM-Kymmene Oyj (HEL:UPM) Has Affirmed Its Dividend Of €0.75

The board of UPM-Kymmene Oyj (HEL:UPM) has announced that it will pay a dividend on the 7th of November, with investors receiving €0.75 per share. The dividend yield will be 6.4% based on this payment which is still above the industry average.

We've discovered 2 warning signs about UPM-Kymmene Oyj. View them for free.

UPM-Kymmene Oyj's Future Dividend Projections Appear Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 183% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

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 60% which is fairly sustainable.

See our latest analysis for UPM-Kymmene Oyj

UPM-Kymmene Oyj Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was €0.70 in 2015, and the most recent fiscal year payment was €1.50. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though UPM-Kymmene Oyj's EPS has declined at around 16% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.

UPM-Kymmene Oyj's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 example, we've identified 2 warning signs for UPM-Kymmene Oyj (1 is concerning!) that you should be aware of before investing. Is UPM-Kymmene Oyj not quite the opportunity you were looking for? Why not check out our selection of top 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.