Koninklijke KPN (AMS:KPN) Will Pay A Larger Dividend Than Last Year At €0.098

Koninklijke KPN N.V. (AMS:KPN) will increase its dividend on the 25th of April to €0.098, which is 3.2% higher than last year's payment from the same period of €0.095. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.

View our latest analysis for Koninklijke KPN

Koninklijke KPN's Dividend Is Well Covered By Earnings

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 77% 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 6.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Koninklijke KPN's Dividend Has Lacked Consistency

Koninklijke KPN has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of €0.04 in 2015 to the most recent total annual payment of €0.147. This means that it has been growing its distributions at 16% per annum over that time. Koninklijke KPN 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.

Dividend Growth Could Be Constrained

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. We are encouraged to see that Koninklijke KPN has grown earnings per share at 31% per year over the past five years. However, Koninklijke KPN isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Koninklijke KPN's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Koninklijke KPN (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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