Sanoma Oyj (HEL:SAA1V) is about to trade ex-dividend in the next two days. If you purchase the stock on or after the 29th of October, you won't be eligible to receive this dividend, when it is paid on the 6th of November.
Sanoma Oyj's upcoming dividend is €0.25 a share, following on from the last 12 months, when the company distributed a total of €0.50 per share to shareholders. Last year's total dividend payments show that Sanoma Oyj has a trailing yield of 4.0% on the current share price of €12.42. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sanoma Oyj paid out 156% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 68% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Sanoma Oyj fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Sanoma Oyj's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sanoma Oyj's dividend payments per share have declined at 4.6% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Should investors buy Sanoma Oyj for the upcoming dividend? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Plus, Sanoma Oyj's paying out a high percentage of its earnings and more than half its cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Sanoma Oyj as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 4 warning signs for Sanoma Oyj that we strongly recommend you have a look at before investing in the company.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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