Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Sparebanken Møre (OB:MORG) has been paying a dividend to shareholders. Today it yields 4.9%. Let’s dig deeper into whether Sparebanken Møre should have a place in your portfolio.
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5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does Sparebanken Møre pass our checks?
The company currently pays out 45% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect MORG’s payout to increase to 55% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 6.0%. Moreover, EPS should increase to NOK30.82. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from Sparebanken Møre fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, Sparebanken Møre has a yield of 4.9%, which is high for Banks stocks but still below the market’s top dividend payers.
If Sparebanken Møre is in your portfolio for cash-generating reasons, there may be better alternatives out there. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MORG’s future growth? Take a look at our free research report of analyst consensus for MORG’s outlook.
- Valuation: What is MORG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MORG is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.