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 €1.08 on the 12th of May, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 4.2%, providing a nice boost to shareholder returns.

Check out our latest analysis for Smurfit Kappa Group

Smurfit Kappa Group's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Smurfit Kappa Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 6.2% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 45%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from €0.15 total annually to €1.39. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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 Smurfit Kappa Group has been growing its earnings per share at 16% a year over the past five years. Smurfit Kappa Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Smurfit Kappa Group's Dividend

Overall, a dividend increase is always good, and we think that Smurfit Kappa Group is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

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. For example, we've identified 3 warning signs for Smurfit Kappa Group (1 shouldn't be ignored!) 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.