Sparebanken Øst (OB:SPOG) Is Increasing Its Dividend To NOK6.40

Sparebanken Øst (OB:SPOG) has announced that it will be increasing its dividend from last year's comparable payment on the 8th of April to NOK6.40. This takes the dividend yield to 8.3%, which shareholders will be pleased with.

View our latest analysis for Sparebanken Øst

Sparebanken Øst Not Expected To Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Sparebanken Øst 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 94%, which means that Sparebanken Øst 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 2.8%. However, over that same time horizon, analysts estimate the future payout ratio to be at 96%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was NOK3.00, compared to the most recent full-year payment of NOK6.40. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sparebanken Øst might have put its house in order since then, but we remain cautious.

We Could See Sparebanken Øst's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Sparebanken Øst has grown earnings per share at 6.9% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Sparebanken Øst's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Sparebanken Øst is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for Sparebanken Øst that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.