Stock Analysis
Nokian Renkaat Oyj (HEL:TYRES) is reducing its dividend to €0.35 on the 11th of Maywhich is 36% less than last year's comparable payment of €0.55. This means the annual payment is 6.4% of the current stock price, which is above the average for the industry.
See our latest analysis for Nokian Renkaat Oyj
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Despite not generating a profit, Nokian Renkaat Oyj is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 7.0%, so there isn't too much pressure on the dividend.
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of €1.20 in 2013 to the most recent total annual payment of €0.55. Doing the maths, this is a decline of about 7.5% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Nokian Renkaat Oyj's EPS has declined at around 32% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Nokian Renkaat Oyj (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Find out whether Nokian Renkaat Oyj is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Nokian Renkaat Oyj develops and manufactures tires in Finland, Nordics, Russia, the rest of Europe, Asia, the Americas, and internationally.
Adequate balance sheet with moderate growth potential.
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