Koninklijke KPN (AMS:KPN) Is Increasing Its Dividend To €0.095

Koninklijke KPN N.V.'s (AMS:KPN) periodic dividend will be increasing on the 19th of April to €0.095, with investors receiving 4.4% more than last year's €0.091. Based on this payment, the dividend yield for the company will be 4.4%, which is fairly typical for the industry.

See our latest analysis for Koninklijke KPN

Koninklijke KPN's Payment Has Solid Earnings Coverage

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last payment made up 78% of earnings, but cash flows were much higher. 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.

The next year is set to see EPS grow by 17.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 69%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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 €0.85 in 2013, and the most recent fiscal year payment was €0.143. This works out to a decline of approximately 83% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Koninklijke KPN's Dividend Might Lack Growth

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Koninklijke KPN has impressed us by growing EPS at 18% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On Koninklijke KPN's Dividend

Overall, we always like to see the dividend being raised, but we don't think Koninklijke KPN will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Koninklijke KPN 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.