Banco do Brasil (BVMF:BBAS3) Will Pay A Smaller Dividend Than Last Year

Banco do Brasil S.A. (BVMF:BBAS3) has announced that on 3rd of March, it will be paying a dividend ofR$0.8219, which a reduction from last year's comparable dividend. However, the dividend yield of 7.9% is still a decent boost to shareholder returns.

See our latest analysis for Banco do Brasil

Banco do Brasil's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Having distributed dividends for at least 10 years, Banco do Brasil has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Banco do Brasil's payout ratio of 41% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share could rise by 22.7% over the next year if the trend from the last few years continues. And analysts also estimate the future payout ratio to be at 41% n 3 years, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was R$1.72 in 2013, and the most recent fiscal year payment was R$3.33. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Banco do Brasil has grown earnings per share at 23% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Banco do Brasil Looks Like A Great Dividend Stock

Overall, we think that Banco do Brasil could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Banco do Brasil that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.