H & M Hennes & Mauritz (STO:HM B) Will 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. This means the dividend yield will be fairly typical at 3.8%.

Check out our latest analysis for H & M Hennes & Mauritz

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

We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, H & M Hennes & Mauritz was paying out 95% of earnings, but a comparatively small 37% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS is forecast to expand by 63.4%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was SEK9.50, compared to the most recent full-year payment of 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, H & M Hennes & Mauritz's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On H & M Hennes & Mauritz's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.

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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.

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