Koninklijke KPN (AMS:KPN) Is Increasing Its Dividend To €0.098

Koninklijke KPN N.V.'s (AMS:KPN) periodic dividend will be increasing on the 25th of April to €0.098, with investors receiving 3.2% more than last year's €0.095. Based on this payment, the dividend yield for the company will be 4.5%, which is fairly typical for the industry.

View our latest analysis for Koninklijke KPN

Koninklijke KPN's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Koninklijke KPN's dividend made up quite a large proportion of earnings but only 60% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next year is set to see EPS grow by 26.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which is in the range that makes us comfortable with the sustainability of the dividend.

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Koninklijke KPN's Dividend Has Lacked Consistency

Looking back, Koninklijke KPN's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was €0.04, compared to the most recent full-year payment of €0.15. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Koninklijke KPN has seen EPS rising for the last five years, at 30% per annum. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

We Really Like Koninklijke KPN's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Koninklijke KPN that you should be aware of before investing. Is Koninklijke KPN not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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