Readers hoping to buy Sparebanken Øst (OB:SPOG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Sparebanken Øst investors that purchase the stock on or after the 25th of March will not receive the dividend, which will be paid on the 5th of April.
The company's next dividend payment will be kr3.85 per share. Last year, in total, the company distributed kr3.85 to shareholders. Last year's total dividend payments show that Sparebanken Øst has a trailing yield of 6.2% on the current share price of NOK62.4. If you buy this business for its dividend, you should have an idea of whether Sparebanken Øst's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Sparebanken Øst paid out 75% of its earnings to investors last year, a normal payout level for most businesses. Sparebanken Øst paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Sparebanken Øst's earnings are down 3.0% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Sparebanken Øst has increased its dividend at approximately 6.8% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Is Sparebanken Øst an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Sparebanken Øst's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that being said, if you're still considering Sparebanken Øst as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 2 warning signs with Sparebanken Øst (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.