Danske Bank (CPH:DANSKE) Is Increasing Its Dividend To DKK14.70

Danske Bank A/S' (CPH:DANSKE) dividend will be increasing from last year's payment of the same period to DKK14.70 on 25th of March. This makes the dividend yield 7.9%, which is above the industry average.

View our latest analysis for Danske Bank

Danske Bank's Payment Expected To Have Solid Earnings Coverage

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

Having distributed dividends for at least 10 years, Danske Bank has a long history of paying out a part of its earnings to shareholders. Based on Danske Bank's last earnings report, the payout ratio is at a decent 60%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, earnings per share is forecast to fall by 1.3% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 64% over the same time horizon, which is in the range that makes us comfortable with the sustainability 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. Since 2015, the annual payment back then was DKK5.50, compared to the most recent full-year payment of DKK18.70. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Danske Bank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Danske Bank has seen EPS rising for the last five years, at 11% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Our Thoughts On Danske Bank's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Danske Bank has been making. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Danske Bank has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.