SpareBank 1 Nord-Norge (OB:NONG) Will Pay A Larger Dividend Than Last Year At kr7.00

SpareBank 1 Nord-Norge (OB:NONG) will increase its dividend on the 12th of April to kr7.00. This will take the annual payment from 6.5% to 9.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for SpareBank 1 Nord-Norge

SpareBank 1 Nord-Norge Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, SpareBank 1 Nord-Norge's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

EPS is set to fall by 13.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 120%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from kr2.16 in 2012 to the most recent annual payment of kr7.00. This means that it has been growing its distributions at 12% per annum over that time. SpareBank 1 Nord-Norge 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 Looks Likely To Grow

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. It's encouraging to see SpareBank 1 Nord-Norge has been growing its earnings per share at 12% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On SpareBank 1 Nord-Norge's Dividend

Overall, we always like to see the dividend being raised, but we don't think SpareBank 1 Nord-Norge will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for SpareBank 1 Nord-Norge that investors need to be conscious of moving forward. 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.