UPM-Kymmene Oyj's (HEL:UPM) Dividend Will Be €0.75

UPM-Kymmene Oyj (HEL:UPM) will pay a dividend of €0.75 on the 7th of November. This means the dividend yield will be fairly typical at 4.4%.

See our latest analysis for UPM-Kymmene Oyj

UPM-Kymmene Oyj's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, the company was paying out 165% of what it was earning and 82% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

UPM-Kymmene Oyj Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was €0.60 in 2014, and the most recent fiscal year payment was €1.50. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

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. However, things aren't all that rosy. UPM-Kymmene Oyj's earnings per share has shrunk at 20% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 3 warning signs for UPM-Kymmene Oyj that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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