Here's Why We're Wary Of Buying Danske Bank's (CPH:DANSKE) For Its Upcoming Dividend

By
Simply Wall St
Published
March 14, 2022
CPSE:DANSKE
Source: Shutterstock

It looks like Danske Bank A/S (CPH:DANSKE) is about to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Danske Bank's shares before the 18th of March to receive the dividend, which will be paid on the 22nd of March.

The company's next dividend payment will be kr.2.00 per share. Last year, in total, the company distributed kr.7.50 to shareholders. Looking at the last 12 months of distributions, Danske Bank has a trailing yield of approximately 6.9% on its current stock price of DKK108. If you buy this business for its dividend, you should have an idea of whether Danske Bank's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Danske Bank

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Danske Bank paid out 51% of its earnings to investors last year, a normal payout level for most businesses.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
CPSE:DANSKE Historic Dividend March 14th 2022

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Danske Bank's earnings per share have fallen at approximately 6.1% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, Danske Bank has lifted its dividend by approximately 18% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Is Danske Bank worth buying for its dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Danske Bank. Case in point: We've spotted 1 warning sign for Danske Bank you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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