Sanoma Oyj (HEL:SANOMA) has announced that on 28th of April, it will be paying a dividend of€0.13, which a reduction from last year's comparable dividend. Despite the cut, the dividend yield of 4.0% will still be comparable to other companies in the industry.
View our latest analysis for Sanoma Oyj
Sanoma Oyj's Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, Sanoma Oyj was paying out 79% of earnings, but a comparatively small 54% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
The next year is set to see EPS grow by 41.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 71% which brings it into quite a comfortable range.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was €0.60 in 2013, and the most recent fiscal year payment was €0.37. Doing the maths, this is a decline of about 4.7% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Sanoma Oyj Might Find It Hard To Grow Its Dividend
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. Sanoma Oyj has seen EPS rising for the last five years, at 18% per annum. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.
In Summary
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Sanoma 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 yield dividend stocks.
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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.
About HLSE:SANOMA
Sanoma Oyj
Operates as a media and learning company in Finland, the Netherlands, other European countries, and internationally.
Fair value with moderate growth potential.
