Sparebanken Øst (OB:SPOG) Will Pay A Larger Dividend Than Last Year At kr3.85

Sparebanken Øst (OB:SPOG) has announced that it will be increasing its dividend on the 5th of April to kr3.85, which will be 10% higher than last year. This will take the annual payment from 7.4% to 8.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Sparebanken Øst

Sparebanken Øst Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Sparebanken Øst's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Looking forward, earnings per share is forecast to fall by 8.5% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 110%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was kr5.00, compared to the most recent full-year payment of kr4.50. Doing the maths, this is a decline of about 1.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Sparebanken Øst May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Sparebanken Øst's earnings per share has shrunk at approximately 2.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Sparebanken Øst's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Sparebanken Øst will make a great income stock. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Sparebanken Øst (1 doesn't sit too well with us!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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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.