Smurfit Kappa Group's (ISE:SK3) Dividend Will Be Increased To €0.335

The board of Smurfit Kappa Group Plc (ISE:SK3) has announced that it will be increasing its dividend by 6.0% on the 27th of October to €0.335, up from last year's comparable payment of €0.316. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.

Check out our latest analysis for Smurfit Kappa Group

Smurfit Kappa Group's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Smurfit Kappa Group was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 10.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 44% by next year, which is in a pretty sustainable 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 €0.15 in 2013, and the most recent fiscal year payment was €1.39. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See Smurfit Kappa Group's Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Smurfit Kappa Group has been growing its earnings per share at 7.7% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Smurfit Kappa Group that investors need to be conscious of moving forward. Is Smurfit Kappa Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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