DNB Bank's (OB:DNB) Dividend Will Be Increased To NOK16.75

DNB Bank ASA (OB:DNB) will increase its dividend from last year's comparable payment on the 9th of May to NOK16.75. Based on this payment, the dividend yield for the company will be 6.4%, which is fairly typical for the industry.

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DNB Bank's Payment Expected To Have Solid Earnings Coverage

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

DNB Bank has a short history of paying out dividends, with its current track record at only 3 years. Based on DNB Bank's last earnings report, calculating for its payout ratio equates to 57%, which means that the company covered its last dividend with comfortable room to spare.

EPS is set to fall by 8.4% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 67% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for DNB Bank

DNB Bank Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of NOK9.75 in 2022 to the most recent total annual payment of NOK16.75. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. DNB Bank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that DNB Bank has been growing its earnings per share at 14% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like DNB Bank's Dividend

Overall, a dividend increase is always good, and we think that DNB Bank is a strong income stock thanks to its track record and growing earnings. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for DNB Bank that investors need to be conscious of moving forward. 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.