Nokia Oyj (HEL:NOKIA) Is Paying Out A Dividend Of €0.03

The board of Nokia Oyj (HEL:NOKIA) has announced that it will pay a dividend on the 13th of February, with investors receiving €0.03 per share. This payment means that the dividend yield will be 3.0%, which is around the industry average.

See our latest analysis for Nokia Oyj

Nokia Oyj's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Nokia Oyj's dividend made up quite a large proportion of earnings but only 19% 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.

Over the next year, EPS is forecast to expand by 88.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 40% which would be quite comfortable going to take the dividend forward.

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 dividend has gone from an annual total of €0.11 in 2015 to the most recent total annual payment of €0.13. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Nokia 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. It's encouraging to see that Nokia Oyj has been growing its earnings per share at 38% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Nokia Oyj hasn't been doing.

Our Thoughts On Nokia Oyj's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Nokia Oyj that investors need to be conscious of moving forward. 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.