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Today we’ll take a closer look at SpareBank 1 Østfold Akershus (OB:SOAG) from a dividend investor’s perspective. Owning a strong dividend company and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
With a nine-year payment history and a 7.0% yield, many investors probably find SpareBank 1 Østfold Akershus intriguing. We’d agree the yield does look enticing. There are a few simple ways to reduce the risks of buying SpareBank 1 Østfold Akershus for its dividend, and we’ll go through these below.Click the interactive chart for our full dividend analysis
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 54% of SpareBank 1 Østfold Akershus’s profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. The first recorded dividend for SpareBank 1 Østfold Akershus, in the last decade, was nine years ago. It’s good to see that SpareBank 1 Østfold Akershus has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past nine-year period, the first annual payment was øre2.36 in 2010, compared to øre14.60 last year. Dividends per share have grown at approximately 22% per year over this time. SpareBank 1 Østfold Akershus’s dividend payments have fluctuated, so it hasn’t grown 22% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
It’s not great to see that the payment has been cut in the past. We’re generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there’s a good chance of bigger dividends in future? Earnings have grown at around 7.9% a year for the past five years, which is better than seeing them shrink! The rate at which earnings have grown is quite decent, and by paying out more than half of its earnings as dividends, the company is striking a reasonable balance between reinvestment and returns to shareholders.
To summarise, shareholders should always check that SpareBank 1 Østfold Akershus’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. SpareBank 1 Østfold Akershus’s payout ratio is within an average range for most market participants. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. To conclude, we’ve spotted a couple of potential concerns with SpareBank 1 Østfold Akershus that may make it less than ideal candidate for dividend investors.
Now, if you want to look closer, it would be worth checking out our free research on SpareBank 1 Østfold Akershus management tenure, salary, and performance.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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 email@example.com. 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.