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There is a lot to be liked about Finnair Oyj (HEL:FIA1S) as an income stock. It has paid dividends over the past 10 years. The company is currently worth €905m, and now yields roughly 4.2%. Does Finnair Oyj tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for Finnair Oyj

5 questions to ask before buying a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will it be able to continue to payout at the current rate in the future?

Does Finnair Oyj pass our checks?

The current trailing twelve-month payout ratio for the stock is 34%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 32% which, assuming the share price stays the same, leads to a dividend yield of around 3.6%. In addition to this, EPS is forecasted to fall to €0.73 in the upcoming year.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. FIA1S has increased its DPS from €0.25 to €0.30 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.

Relative to peers, Finnair Oyj generates a yield of 4.2%, which is high for Airlines stocks but still below the market’s top dividend payers.

Next Steps:

Taking into account the dividend metrics, Finnair Oyj ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three essential aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for FIA1S’s future growth? Take a look at our free research report of analyst consensus for FIA1S’s outlook.

2. Valuation: What is FIA1S worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FIA1S is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.