H & M Hennes & Mauritz (STO:HM B) Is Paying Out 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 11th of May, with investors receiving SEK3.25 per share. This payment means that the dividend yield will be 5.2%, which is around the industry average.

View our latest analysis for H & M Hennes & Mauritz

H & M Hennes & Mauritz's Payment Has Solid Earnings Coverage

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 301% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 72% which is fairly sustainable.

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. The annual payment during the last 10 years was SEK9.50 in 2013, and the most recent fiscal year payment was SEK6.50. This works out to be a decline of approximately 3.7% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. H & M Hennes & Mauritz's EPS has fallen by approximately 26% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

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. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for H & M Hennes & Mauritz that you should be aware of before investing. 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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