SpareBank 1 Nord-Norge's (OB:NONG) Shareholders Will Receive A Bigger Dividend Than Last Year

SpareBank 1 Nord-Norge's (OB:NONG) dividend will be increasing from last year's payment of the same period to NOK8.20 on 17th of April. This will take the annual payment to 8.6% 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's Payment Expected To Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

SpareBank 1 Nord-Norge has a long history of paying out dividends, with its current track record at a minimum of 10 years. While there are no guarantees that SpareBank 1 Nord-Norge will always be able to pay out a dividend, the company's payout ratio sits at 99%. This is a sign that SpareBank 1 Nord-Norge is barely covering its dividend.

Over the next 3 years, EPS is forecast to expand by 31.9%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 68% over the same time period, which would make us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was NOK1.40 in 2013, and the most recent fiscal year payment was NOK8.20. This means that it has been growing its distributions at 19% 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's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, SpareBank 1 Nord-Norge has only grown its earnings per share at 4.5% per annum over the past five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think SpareBank 1 Nord-Norge is a great stock to add to your portfolio if income is your focus.

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. As an example, we've identified 1 warning sign for SpareBank 1 Nord-Norge 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.