H & M Hennes & Mauritz (STO:HM B) Has Affirmed Its Dividend Of SEK3.25

H & M Hennes & Mauritz AB (publ) (STO:HM B) has announced that it will pay a dividend of SEK3.25 per share on the 13th of May. This payment means that the dividend yield will be 3.9%, which is around the industry average.

View our latest analysis for H & M Hennes & Mauritz

H & M Hennes & Mauritz's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, the company was paying out 112% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 44%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 97.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from SEK9.50 total annually to SEK6.50. The dividend has shrunk at around 3.7% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though H & M Hennes & Mauritz's EPS has declined at around 4.3% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for H & M Hennes & Mauritz that investors should take into consideration. Is H & M Hennes & Mauritz not quite the opportunity you were looking for? Why not check out our selection of top 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.