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It looks like UPM-Kymmene Oyj (HEL:UPM) is about to go ex-dividend in the next 4 days. You can purchase shares before the 1st of April in order to receive the dividend, which the company will pay on the 16th of April.
UPM-Kymmene Oyj's next dividend payment will be €1.30 per share. Last year, in total, the company distributed €1.30 to shareholders. Calculating the last year's worth of payments shows that UPM-Kymmene Oyj has a trailing yield of 5.5% on the current share price of €23.82. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UPM-Kymmene Oyj is paying out an acceptable 65% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether UPM-Kymmene Oyj generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, UPM-Kymmene Oyj's earnings per share have been growing at 16% a year for the past five years. UPM-Kymmene Oyj has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, UPM-Kymmene Oyj has lifted its dividend by approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is UPM-Kymmene Oyj an attractive dividend stock, or better left on the shelf? UPM-Kymmene Oyj's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while UPM-Kymmene Oyj has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for UPM-Kymmene Oyj that we strongly recommend you have a look at before investing in the company.
If you're in the market for dividend stocks, we recommend checking our list of top 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 firstname.lastname@example.org. 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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