ABN AMRO Bank's (AMS:ABN) Dividend Will Be Increased To €0.62

The board of ABN AMRO Bank N.V. (AMS:ABN) has announced that it will be paying its dividend of €0.62 on the 12th of September, an increased payment from last year's comparable dividend. This will take the annual payment to 9.5% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for ABN AMRO Bank

ABN AMRO Bank's Payment Expected To Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

ABN AMRO Bank has a good history of paying out dividends, with its current track record at 7 years. Based on ABN AMRO Bank's last earnings report, the payout ratio is at a decent 48%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 4.5% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 50% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

ABN AMRO Bank's Dividend Has Lacked Consistency

Looking back, ABN AMRO Bank's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of €0.88 in 2016 to the most recent total annual payment of €1.34. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. ABN AMRO Bank might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

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. However, ABN AMRO Bank's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On ABN AMRO Bank's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for ABN AMRO Bank (1 can't be ignored!) that you should be aware of before investing. 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.