ABN AMRO Bank (AMS:ABN) Has Announced That Its Dividend Will Be Reduced To €0.54

The board of ABN AMRO Bank N.V. (AMS:ABN) has announced that the dividend on 9th of September will be reduced by 10.0% from last year's €0.60 to €0.54. However, the dividend yield of 5.2% still remains in a typical range for the industry.

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 ABN AMRO Bank's stock price has increased by 30% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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ABN AMRO Bank's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

ABN AMRO Bank has a good history of paying out dividends, with its current track record at 9 years. Taking data from its last earnings report, calculating for the company's payout ratio of 50%shows that ABN AMRO Bank would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, EPS is forecast to rise by 17.7% over the next 3 years. Analysts estimate the future payout ratio will be 50% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Check out our latest analysis for ABN AMRO Bank

ABN AMRO Bank's Dividend Has Lacked Consistency

Looking back, ABN AMRO Bank's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of €0.88 in 2016 to the most recent total annual payment of €1.35. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that ABN AMRO Bank has been growing its earnings per share at 29% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that ABN AMRO Bank could prove to be a strong dividend payer.

We Really Like ABN AMRO Bank's Dividend

Overall, we think that ABN AMRO Bank could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. As an example, we've identified 1 warning sign for ABN AMRO Bank that you should be aware of before investing. Is ABN AMRO Bank not quite the opportunity you were looking for? Why not check out our selection of top 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.