Sparebanken Øst's (OB:SPOG) Upcoming Dividend Will Be Larger Than Last Year's

The board of Sparebanken Øst (OB:SPOG) has announced that the dividend on 8th of April will be increased to NOK6.40, which will be 19% higher than last year's payment of NOK5.40 which covered the same period. This makes the dividend yield about the same as the industry average at 6.9%.

See our latest analysis for Sparebanken Øst

Sparebanken Øst Not Expected To Earn Enough To Cover Its Payments

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, Sparebanken Øst has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Sparebanken Øst's payout ratio of 79% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to fall by 9.3% over the next 3 years. And estimates from analysts put the future payout ratio at 97% over the same time horizon, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was NOK3.00 in 2015, and the most recent fiscal year payment was NOK5.40. This means that it has been growing its distributions at 6.1% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Sparebanken Øst Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Sparebanken Øst has seen EPS rising for the last five years, at 9.1% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Sparebanken Øst's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Sparebanken Øst has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Sparebanken Øst is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Sparebanken Øst that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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