H & M Hennes & Mauritz (STO:HM B) Has Announced A Dividend Of SEK3.40

H & M Hennes & Mauritz AB (publ) (STO:HM B) will pay a dividend of SEK3.40 on the 12th of November. The payment will take the dividend yield to 3.9%, which is in line with the average for the industry.

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H & M Hennes & Mauritz's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 101% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 60%. 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 48.6% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 65% which brings it into quite a comfortable range.

View our latest analysis for H & M Hennes & Mauritz

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. Since 2015, the dividend has gone from SEK9.75 total annually to SEK6.80. Doing the maths, this is a decline of about 3.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. H & M Hennes & Mauritz has seen EPS rising for the last five years, at 30% per annum. EPS has been growing well, but H & M Hennes & Mauritz has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think H & M Hennes & Mauritz is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for H & M Hennes & Mauritz that investors should take into consideration. 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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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.