H & M Hennes & Mauritz (STO:HM B) Is Due To Pay A Dividend Of SEK3.25

The board of H & M Hennes & Mauritz AB (publ) (STO:HM B) has announced that it will pay a dividend on the 13th of November, with investors receiving SEK3.25 per share. Based on this payment, the dividend yield will be 3.8%, which is fairly typical for the industry.

View our latest analysis for H & M Hennes & Mauritz

H & M Hennes & Mauritz's Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, H & M Hennes & Mauritz's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

The next year is set to see EPS grow by 89.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was SEK9.50 in 2014, and the most recent fiscal year payment was SEK6.50. Doing the maths, this is a decline of about 3.7% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that H & M Hennes & Mauritz's earnings per share has fallen at approximately 4.0% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

H & M Hennes & Mauritz's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about H & M Hennes & Mauritz's payments, as there could be some issues with sustaining them into the future. 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. We don't think H & M Hennes & Mauritz is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for H & M Hennes & Mauritz that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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