Today we’ll take a closer look at Aurskog Sparebank (OB:AURG) from a dividend investor’s perspective. Owning a strong dividend company and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
With a nine-year payment history and a 5.8% yield, many investors probably find Aurskogrebank intriguing. We’d agree the yield does look enticing. There are a few simple ways to reduce the risks of buying Aurskogrebank for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on Aurskogrebank!
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. In the last year, Aurskogrebank paid out 28% of its profit as dividends. This is medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
We update our data on Aurskogrebank every 24 hours, so you can always get our latest analysis of its financial health, here.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Aurskogrebank, in the last decade, was nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once by more than 20%, and we’re cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was øre6.20 in 2010, compared to øre11.00 last year. Dividends per share have grown at approximately 6.6% per year over this time. Aurskogrebank’s dividend payments have fluctuated, so it hasn’t grown 6.6% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
It’s good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Aurskogrebank might have turned a corner, but we remain cautious.
Dividend Growth Potential
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. Aurskogrebank’s earnings per share have shrunk at 1.0% a year over the past five years. A modest decline in earnings per share is not great to see, but it doesn’t automatically make a dividend unsustainable. Still, we’d vastly prefer to see EPS growth when researching dividend stocks.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We’re glad to see Aurskogrebank has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. To conclude, we’ve spotted a couple of potential concerns with Aurskogrebank that may make it less than ideal candidate for dividend investors.
You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Aurskogrebank stock.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.