Are You An Income Investor? Don't Miss Out On Lån & Spar Bank A/S (CPH:LASP)

Today we'll take a closer look at Lån & Spar Bank A/S (CPH:LASP) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A 1.6% yield is nothing to get excited about, but investors probably think the long payment history suggests Lån & Spar Bank has some staying power. Some simple research can reduce the risk of buying Lån & Spar Bank for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Lån & Spar Bank!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 18% of Lån & Spar Bank's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.

Remember, you can always get a snapshot of Lån & Spar Bank's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Lån & Spar Bank's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was kr.5.0 in 2011, compared to kr.8.0 last year. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time.

Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think is seriously impressive.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Lån & Spar Bank has grown its earnings per share at 3.4% per annum over the past five years. Growth has been hard to come by. On the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that Lån & Spar Bank has a low and conservative payout ratio. Earnings growth has been limited, but we like that the dividend payments have been fairly consistent. Overall we think Lån & Spar Bank is an interesting dividend stock, although it could be better.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Lån & Spar Bank that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. 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.
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