Sanoma Oyj (HEL:SANOMA) Is Increasing Its Dividend To €0.27

The board of Sanoma Oyj (HEL:SANOMA) has announced that it will be increasing its dividend on the 4th of November to €0.27. This makes the dividend yield about the same as the industry average at 3.9%.

View our latest analysis for Sanoma Oyj

Sanoma Oyj Doesn't Earn Enough To Cover Its Payments

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Sanoma Oyj was paying out 83% of earnings, but a comparatively small 59% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next 12 months is set to see EPS grow by 3.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.

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 €0.60 in 2012 to the most recent annual payment of €0.54. Doing the maths, this is a decline of about 1.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Sanoma Oyj has grown earnings per share at 49% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Sanoma Oyj hasn't been doing.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Sanoma Oyj's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. As an example, we've identified 3 warning signs for Sanoma Oyj 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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