Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Sandnes Sparebank (OB:SADG) has paid dividends to shareholders, and these days it yields 7.7%. Does Sandnesrebank tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How well does Sandnesrebank fit our criteria?
Sandnesrebank has a trailing twelve-month payout ratio of 75%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 72% which, assuming the share price stays the same, leads to a dividend yield of 6.7%. Moreover, EPS is forecasted to fall to NOK6.2 in the upcoming year.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Sandnesrebank as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Sandnesrebank has a yield of 7.7%, which is high for Banks stocks.
Taking into account the dividend metrics, Sandnesrebank ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. 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 pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for SADG’s future growth? Take a look at our free research report of analyst consensus for SADG’s outlook.
- Valuation: What is SADG 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 SADG is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.