March 29, 2024

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METSO) For Its Upcoming Dividend

Readers hoping to buy Metso Corporation (HEL:METSO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 23rd of March will not receive this dividend, which will be paid on the 31st of March.

Metso’s next dividend payment will be €1.47 per share. Last year, in total, the company distributed €1.47 to shareholders. Looking at the last 12 months of distributions, Metso has a trailing yield of approximately 7.7% on its current stock price of €19.2. If you buy this business for its dividend, you should have an idea of whether Metso’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Metso

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Last year, Metso paid out 311% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out an unsustainably high 254% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we’re not grasping, this could signal a risk that the dividend may have to be cut in the future.

Cash is slightly more important than profit from a dividend perspective, but given Metso’s payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

HLSE:METSO Historical Dividend Yield, March 19th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re discomforted by Metso’s 18% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, Metso has lifted its dividend by approximately 7.7% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Metso is already paying out 311% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.

Final Takeaway

From a dividend perspective, should investors buy or avoid Metso? Not only are earnings per share declining, but Metso is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company’s near future. It’s not that we think Metso is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

So if you’re still interested in Metso despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we’ve spotted 2 warning signs for Metso you should know about.

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 editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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