SpareBank 1 Nord-Norge's (OB:NONG) Dividend Will Be Increased To kr7.00

SpareBank 1 Nord-Norge (OB:NONG) has announced that it will be increasing its dividend on the 12th of April to kr7.00. This will take the annual payment from 6.2% to 8.5% of the stock price, which is above what most companies in the industry pay.

View 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.

Looking forward, earnings per share is forecast to fall by 10.9% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 117%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was kr2.16, compared to the most recent full-year payment of kr7.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. SpareBank 1 Nord-Norge has impressed us by growing EPS at 12% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

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. While SpareBank 1 Nord-Norge is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for SpareBank 1 Nord-Norge that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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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.