SpareBank 1 SMN's (OB:MING) Shareholders Will Receive A Smaller Dividend Than Last Year

SpareBank 1 SMN (OB:MING) is reducing its dividend from last year's comparable payment to NOK6.50 on the 11th of April. This means that the annual payment will be 5.0% of the current stock price, which is in line with the average for the industry.

See our latest analysis for SpareBank 1 SMN

SpareBank 1 SMN's Earnings Will Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, SpareBank 1 SMN has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but SpareBank 1 SMN's payout ratio of 51% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 28.1%. Analysts forecast the future payout ratio could be 55% over the same time horizon, which is a number we think the company can maintain.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from NOK2.00 total annually to NOK6.50. This means that it has been growing its distributions at 13% per annum over that time. SpareBank 1 SMN has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SpareBank 1 SMN has seen EPS rising for the last five years, at 8.0% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like SpareBank 1 SMN's Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that SpareBank 1 SMN has the makings of a solid income stock moving forward. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for SpareBank 1 SMN (1 is concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.