Danske Bank (CPH:DANSKE) Is Paying Out A Larger Dividend Than Last Year

Danske Bank A/S (CPH:DANSKE) will increase its dividend from last year's comparable payment on the 25th of March to DKK14.70. This will take the dividend yield to an attractive 7.7%, providing a nice boost to shareholder returns.

Check out our latest analysis for Danske Bank

Danske Bank's Payment Expected To Have Solid Earnings Coverage

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

Danske 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 60%, which means that Danske Bank would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 0.3% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 64% over the same time period, which we think the company can easily maintain.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from DKK5.50 total annually to DKK18.70. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. 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

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 Danske Bank has been growing its earnings per share at 11% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

Our Thoughts On Danske Bank's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Danske Bank's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Danske Bank has been making. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Danske Bank (of which 1 shouldn't be ignored!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.