Readers hoping to buy KONE Oyj (HEL:KNEBV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 26th of February will not receive the dividend, which will be paid on the 5th of March.
KONE Oyj's upcoming dividend is €1.70 a share, following on from the last 12 months, when the company distributed a total of €1.70 per share to shareholders. Last year's total dividend payments show that KONE Oyj has a trailing yield of 3.1% on the current share price of €54.9. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, KONE Oyj paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether KONE Oyj generated enough free cash flow to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while KONE Oyj's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see KONE Oyj earnings per share are up 4.1% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, KONE Oyj has increased its dividend at approximately 18% 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid KONE Oyj? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of KONE Oyj.
Curious what other investors think of KONE Oyj? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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