Erste Group Bank (VIE:EBS) Is Increasing Its Dividend To €2.70

Erste Group Bank AG (VIE:EBS) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of May to €2.70. This will take the annual payment to 6.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Erste Group Bank

Erste Group Bank's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Erste Group Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 40%, which means that Erste Group Bank would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to fall by 3.6%. However, as estimated by analysts, the future payout ratio could be 46% over the same time period, which we think the company can easily maintain.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €0.20 in 2014, and the most recent fiscal year payment was €2.70. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Erste Group Bank has seen EPS rising for the last five years, at 13% per annum. Erste Group Bank definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Erste Group Bank Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Erste Group Bank is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Erste Group Bank (of which 1 makes us a bit uncomfortable!) you should know about. Is Erste Group Bank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.