Could Evli Pankki Oyj (HEL:EVLI) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Evli Pankki Oyj is a new dividend aristocrat in the making. It sure looks interesting on these metrics - but there's always more to the story . Some simple analysis can reduce the risk of holding Evli Pankki Oyj for its dividend, and we'll focus on the most important aspects below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Evli Pankki Oyj paid out 91% of its profit as dividends, over the trailing twelve month period. Its payout ratio is quite high, and the dividend is not well covered by earnings. If earnings are growing or the company has a large cash balance, this might be sustainable - still, we think it is a concern.
We update our data on Evli Pankki Oyj every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Evli Pankki Oyj has been paying a dividend for the past four years. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past four-year period, the first annual payment was €0.31 in 2016, compared to €0.66 last year. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time.
We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Evli Pankki Oyj has grown its earnings per share at 19% per annum over the past five years. Although earnings per share are up nicely Evli Pankki Oyj is paying out 91% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Evli Pankki Oyj is paying out a larger percentage of its profit than we're comfortable with. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. In summary, we're unenthused by Evli Pankki Oyj as a dividend stock. It's not that we think it is a bad company; it simply falls short of our criteria in some key areas.
Now, if you want to look closer, it would be worth checking out our free research on Evli Pankki Oyj management tenure, salary, and performance.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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