Smurfit Kappa Group's (ISE:SK3) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Smurfit Kappa Group Plc (ISE:SK3) has announced that it will be paying its dividend of €0.316 on the 28th of October, an increased payment from last year's comparable dividend. This will take the annual payment to 3.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Smurfit Kappa Group

Smurfit Kappa Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Smurfit Kappa Group's dividend was only 35% of earnings, however it was paying out 131% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 2.9%. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.15 in 2012, and the most recent fiscal year payment was €1.28. This implies that the company grew its distributions at a yearly rate of about 24% over that duration. Smurfit Kappa Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Smurfit Kappa Group has been growing its earnings per share at 16% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Smurfit Kappa Group's prospects of growing its dividend payments in the future.

Our Thoughts On Smurfit Kappa Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Smurfit Kappa Group will make a great income stock. While Smurfit Kappa Group is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 3 warning signs for Smurfit Kappa Group (of which 1 is significant!) you should know about. 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.