Banco Santander (BME:SAN) Has Announced That It Will Be Increasing Its Dividend To €0.0891

Banco Santander, S.A. (BME:SAN) will increase its dividend from last year's comparable payment on the 2nd of May to €0.0891. This takes the annual payment to 3.5% of the current stock price, which unfortunately is below what the industry is paying.

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 Banco Santander's stock price has increased by 33% 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 Banco Santander

Banco Santander'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.

Banco Santander has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Banco Santander's payout ratio of 27% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 28.8%. The future payout ratio could be 27% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from €0.571 total annually to €0.22. This works out to be a decline of approximately 9.1% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Banco Santander has seen EPS rising for the last five years, at 18% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Banco Santander's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Banco Santander that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.