UPM-Kymmene Oyj (HEL:UPM) Has Affirmed Its Dividend Of €1.30

UPM-Kymmene Oyj (HEL:UPM) has announced that it will pay a dividend of €1.30 per share on the 7th of April. Based on this payment, the dividend yield on the company's stock will be 4.0%, which is an attractive boost to shareholder returns.

See our latest analysis for UPM-Kymmene Oyj

UPM-Kymmene Oyj's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, UPM-Kymmene Oyj was earning enough to cover the dividend, but it wasn't generating any free cash flows. 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 could expand by 7.9% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

UPM-Kymmene Oyj Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was €0.55 in 2012, and the most recent fiscal year payment was €1.30. This implies that the company grew its distributions at a yearly rate of about 9.0% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

We Could See UPM-Kymmene Oyj's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see UPM-Kymmene Oyj has been growing its earnings per share at 7.9% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On UPM-Kymmene Oyj's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for UPM-Kymmene Oyj that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.