TietoEVRY Oyj (HEL:TIETO) Is Increasing Its Dividend To €0.725

TietoEVRY Oyj (HEL:TIETO) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of October to €0.725. This takes the annual payment to 6.7% of the current stock price, which is about average for the industry.

See our latest analysis for TietoEVRY Oyj

TietoEVRY Oyj's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, TietoEVRY Oyj was paying out 83% of earnings, but a comparatively small 74% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 26.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €0.83 in 2013 to the most recent total annual payment of €1.45. This works out to be a compound annual growth rate (CAGR) of approximately 5.7% a year over that time. 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's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that TietoEVRY Oyj's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think TietoEVRY Oyj will make a great income stock. 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 probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for TietoEVRY Oyj that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.