Ilkka Oyj (HEL:ILKKA2) Will Pay A Larger Dividend Than Last Year At €0.22

Ilkka Oyj (HEL:ILKKA2) will increase its dividend from last year's comparable payment on the 6th of May to €0.22. Based on this payment, the dividend yield for the company will be 6.1%, which is fairly typical for the industry.

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Ilkka Oyj's Future Dividends May Potentially Be At Risk

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Ilkka Oyj was paying out quite a large proportion of both earnings and cash flow, with the dividend being 213% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

EPS is set to fall by 40.3% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 170%, which is definitely a bit high to be sustainable going forward.

View our latest analysis for Ilkka Oyj

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of €0.10 in 2015 to the most recent total annual payment of €0.22. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Ilkka Oyj has grown earnings per share at 9.6% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Ilkka Oyj's payments are rock solid. Strong earnings growth means Ilkka Oyj has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Ilkka Oyj (2 don't sit too well with us!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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