Koninklijke KPN's (AMS:KPN) Shareholders Will Receive A Bigger Dividend Than Last Year

Koninklijke KPN N.V. (AMS:KPN) has announced that it will be increasing its periodic dividend on the 25th of April to €0.098, which will be 3.2% higher than last year's comparable payment amount of €0.095. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.

See our latest analysis for Koninklijke KPN

Koninklijke KPN's Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before this announcement, Koninklijke KPN was paying out 74% of earnings, but a comparatively small 60% of free cash flows. 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 26.1%. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.

Koninklijke KPN's Dividend Has Lacked Consistency

Looking back, Koninklijke KPN's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of €0.04 in 2015 to the most recent total annual payment of €0.15. This implies that the company grew its distributions at a yearly rate of about 16% 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.

The Dividend Looks Likely To Grow

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. Koninklijke KPN has impressed us by growing EPS at 30% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Koninklijke KPN hasn't been doing.

We Really Like Koninklijke KPN's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend 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. Taking the debate a bit further, we've identified 2 warning signs for Koninklijke KPN that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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