Banco do Brasil's (BVMF:BBAS3) Dividend Will Be Reduced To R$0.2042

Banco do Brasil S.A. (BVMF:BBAS3) is reducing its dividend from last year's comparable payment to R$0.2042 on the 28th of June. However, the dividend yield of 8.6% is still a decent boost to shareholder returns.

Check out our latest analysis for Banco do Brasil

Banco do Brasil's Dividend Forecasted To Be Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Banco do Brasil has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Banco do Brasil's last earnings report, the payout ratio is at a decent 42%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next 3 years are set to see EPS grow by 32.1%. The future payout ratio could be 44% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was R$1.12 in 2014, and the most recent fiscal year payment was R$2.28. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Banco do Brasil has seen EPS rising for the last five years, at 17% per annum. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

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. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Banco do Brasil that you should be aware of before investing. Is Banco do Brasil 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.