SpareBank 1 Sør-Norge's (OB:SB1NO) Upcoming Dividend Will Be Larger Than Last Year's

SpareBank 1 Sør-Norge ASA's (OB:SB1NO) dividend will be increasing from last year's payment of the same period to NOK8.50 on 5th of May. Based on this payment, the dividend yield for the company will be 5.1%, which is fairly typical for the industry.

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SpareBank 1 Sør-Norge's Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

SpareBank 1 Sør-Norge has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 65%, which means that SpareBank 1 Sør-Norge would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to expand by 30.6%. Analysts forecast the future payout ratio could be 63% over the same time horizon, which is a number we think the company can maintain.

See our latest analysis for SpareBank 1 Sør-Norge

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 NOK1.60 in 2015, and the most recent fiscal year payment was NOK8.50. This works out to be a compound annual growth rate (CAGR) of approximately 18% 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, SpareBank 1 Sør-Norge's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company has been growing at a pretty soft 1.4% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

An additional note is that the company has been raising capital by issuing stock equal to 42% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, SpareBank 1 Sør-Norge has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is SpareBank 1 Sør-Norge not quite the opportunity you were looking for? Why not check out our selection of top 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.