Skjern Bank's (CPH:SKJE) Dividend Will Be Reduced To DKK3.50

Skjern Bank A/S (CPH:SKJE) is reducing its dividend from last year's comparable payment to DKK3.50 on the 6th of March. This payment takes the dividend yield to 1.5%, which only provides a modest boost to overall returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Skjern Bank's stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Skjern Bank

Skjern Bank's Dividend Forecasted To Be Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end.

Skjern Bank has established itself as a dividend paying company, given its 6-year history of distributing earnings to shareholders. While past data isn't a guarantee for the future, Skjern Bank's latest earnings report puts its payout ratio at 11%, showing that the company can pay out its dividends comfortably.

Over the next year, EPS could expand by 15.8% if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio will be 12%, which is in the range that makes us comfortable with the sustainability of the dividend.

Skjern Bank's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. The most recent annual payment of DKK3.00 is about the same as the annual payment 6 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Skjern Bank has seen EPS rising for the last five years, at 16% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Skjern Bank Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that Skjern Bank has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Skjern Bank 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.