Verkkokauppa.com Oyj (HEL:VERK) Is Paying Out A Larger Dividend Than Last Year

The board of Verkkokauppa.com Oyj (HEL:VERK) has announced that it will be increasing its dividend on the 4th of April to €0.60. This will take the dividend yield from 3.9% to 12%, providing a nice boost to shareholder returns.

View our latest analysis for Verkkokauppa.com Oyj

Verkkokauppa.com Oyj Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Verkkokauppa.com Oyj was paying out a very large proportion of what it was earning and 617% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next 12 months is set to see EPS grow by 5.2%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

Verkkokauppa.com Oyj's Dividend Has Lacked Consistency

Verkkokauppa.com Oyj has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the first annual payment was €0.14, compared to the most recent full-year payment of €0.25. This means that it has been growing its distributions at 8.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Verkkokauppa.com Oyj has grown earnings per share at 8.5% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Verkkokauppa.com Oyj's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Verkkokauppa.com Oyj is a great stock to add to your portfolio if income is your focus.

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. As an example, we've identified 1 warning sign for Verkkokauppa.com 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 performing dividend stock.

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