Banco do Brasil's (BVMF:BBAS3) Dividend Will Be Reduced To R$0.3423

Banco do Brasil S.A. (BVMF:BBAS3) is reducing its dividend from last year's comparable payment to R$0.3423 on the 28th of December. However, the dividend yield of 7.5% is still a decent boost to shareholder returns.

View 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.

Banco do Brasil has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Banco do Brasil's payout ratio of 38% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 15.2% over the next 3 years. The future payout ratio could be 42% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of R$1.72 in 2013 to the most recent total annual payment of R$4.08. This means that it has been growing its distributions at 9.0% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

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. It's encouraging to see that Banco do Brasil has been growing its earnings per share at 22% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Banco do Brasil's Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Banco do Brasil does. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Banco do Brasil that investors should take into consideration. 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.