ABN AMRO Bank's (AMS:ABN) Shareholders Will Receive A Bigger Dividend Than Last Year

ABN AMRO Bank N.V. (AMS:ABN) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of May to €0.67. This makes the dividend yield 8.1%, which is above the industry average.

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 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for ABN AMRO Bank

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

A big dividend yield for a few years doesn't mean much if it can't be sustained.

ABN AMRO Bank has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio of 48%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 25.0% over the next 3 years. The future payout ratio could be 50% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

ABN AMRO Bank's Dividend Has Lacked Consistency

It's comforting to see that ABN AMRO Bank has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of €0.88 in 2016 to the most recent total annual payment of €1.34. This means that it has been growing its distributions at 6.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that ABN AMRO Bank's earnings per share has fallen at approximately 6.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments ABN AMRO Bank has been making. We don't think ABN AMRO Bank is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for ABN AMRO Bank 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.