How Does Sparekassen Sjælland-Fyn A/S (CPH:SPKSJF) Fare As A Dividend Stock?

Dividend paying stocks like Sparekassen Sjælland-Fyn A/S (CPH:SPKSJF) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With a five-year payment history and a 3.1% yield, many investors probably find Sparekassen Sjælland-Fyn intriguing. We'd agree the yield does look enticing. The company also bought back stock during the year, equivalent to approximately 1.2% of the company's market capitalisation at the time. Some simple research can reduce the risk of buying Sparekassen Sjælland-Fyn for its dividend - read on to learn more.

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Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Sparekassen Sjælland-Fyn paid out 26% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Plus, there is room to increase the payout ratio over time.

Consider getting our latest analysis on Sparekassen Sjælland-Fyn's financial position here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Looking at the data, we can see that Sparekassen Sjælland-Fyn has been paying a dividend for the past five years. Its most recent annual dividend was kr.3.0 per share, effectively flat on its first payment five years ago.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Sparekassen Sjælland-Fyn has grown its earnings per share at 12% per annum over the past five years. A company paying out less than a quarter of its earnings as dividends, and growing earnings at more than 10% per annum, looks to be right in the cusp of its growth phase. At the right price, we might be interested.

Conclusion

To summarise, shareholders should always check that Sparekassen Sjælland-Fyn's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Sparekassen Sjælland-Fyn has a low and conservative payout ratio. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Sparekassen Sjælland-Fyn has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Sparekassen Sjælland-Fyn that investors should take into consideration.

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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