Income Investors Should Know That Arion banki hf. (ICE:ARION) Goes Ex-Dividend Soon

Arion banki hf. (ICE:ARION) stock is about to trade ex-dividend in 3 days. If you purchase the stock on or after the 17th of March, you won't be eligible to receive this dividend, when it is paid on the 24th of March.

Arion banki hf's next dividend payment will be Kr1.74 per share, and in the last 12 months, the company paid a total of Kr1.74 per share. Based on the last year's worth of payments, Arion banki hf stock has a trailing yield of around 1.5% on the current share price of ISK117. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Arion banki hf

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Arion banki hf paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Arion banki hf paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Arion banki hf's earnings per share have dropped 14% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Arion banki hf has seen its dividend decline 41% per annum on average over the past two years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Arion banki hf an attractive dividend stock, or better left on the shelf? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. We think there are likely better opportunities out there.

However if you're still interested in Arion banki hf as a potential investment, you should definitely consider some of the risks involved with Arion banki hf. For example, we've found 2 warning signs for Arion banki hf (1 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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