The Case For Oyj Ahola Transport Abp (HEL:AHOLA): Could It Be A Nice Addition To Your Dividend Portfolio?

Is Oyj Ahola Transport Abp (HEL:AHOLA) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With a 1.4% yield and a five-year payment history, investors probably think Oyj Ahola Transport Abp looks like a reliable dividend stock. A 1.4% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding Oyj Ahola Transport Abp for its dividend, and we'll focus on the most important aspects below.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 14% of Oyj Ahola Transport Abp's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Oyj Ahola Transport Abp paid out 7.5% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's positive to see that Oyj Ahola Transport Abp's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

With a strong net cash balance, Oyj Ahola Transport Abp investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Oyj Ahola Transport Abp's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Oyj Ahola Transport Abp has been paying a dividend for the past five years. During the past five-year period, the first annual payment was €0.01 in 2016, compared to €0.02 last year. This works out to be a compound annual growth rate (CAGR) of approximately 8.8% a year over that time.

Oyj Ahola Transport Abp has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. It's good to see Oyj Ahola Transport Abp has been growing its earnings per share at 22% a year over the past five years. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly - an ideal combination.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Oyj Ahola Transport Abp has low and conservative payout ratios. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. Oyj Ahola Transport Abp performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.

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. For instance, we've picked out 1 warning sign for Oyj Ahola Transport Abp that investors should take into consideration.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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