Banco Santander (BME:SAN) Is Paying Out A Larger Dividend Than Last Year

Banco Santander, S.A. (BME:SAN) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of November to €0.115. Despite this raise, the dividend yield of 2.5% is only a modest boost to shareholder returns.

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Banco Santander's Payment Expected To Have Solid Earnings Coverage

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

Banco Santander has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past records don't necessarily translate into future results, the company's payout ratio of 13% also shows that Banco Santander is able to comfortably pay dividends.

Looking forward, EPS is forecast to rise by 26.1% over the next 3 years. Analysts estimate the future payout ratio will be 37% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Banco Santander

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.192 in 2015, and the most recent fiscal year payment was €0.22. This works out to be a compound annual growth rate (CAGR) of approximately 1.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Banco Santander has impressed us by growing EPS at 45% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Banco Santander Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Banco Santander that investors should know about before committing capital to this stock. 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.