It looks like Kemira Oyj (HEL:KEMIRA) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 26th of March to receive the dividend, which will be paid on the 7th of April.
Kemira Oyj's upcoming dividend is €0.28 a share, following on from the last 12 months, when the company distributed a total of €0.56 per share to shareholders. Based on the last year's worth of payments, Kemira Oyj has a trailing yield of 6.4% on the current stock price of €8.705. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Kemira Oyj, with earnings per share up 4.1% on average over the last five years. A high payout ratio of 78% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Kemira Oyj could be signalling that its future growth prospects are thin.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Kemira Oyj has lifted its dividend by approximately 7.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Kemira Oyj worth buying for its dividend? While earnings per share growth has been modest, Kemira Oyj's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, Kemira Oyj looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while Kemira Oyj has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 2 warning signs for Kemira Oyj you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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