Stock Analysis

We Wouldn't Be Too Quick To Buy Sparebanken Øst (OB:SPOG) Before It Goes Ex-Dividend

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Sparebanken Øst (OB:SPOG) is about to trade ex-dividend in the next 4 days. 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. Meaning, you will need to purchase Sparebanken Øst's shares before the 24th of March to receive the dividend, which will be paid on the 4th of April.

The company's upcoming dividend is kr3.80 a share, following on from the last 12 months, when the company distributed a total of kr3.80 per share to shareholders. Looking at the last 12 months of distributions, Sparebanken Øst has a trailing yield of approximately 8.0% on its current stock price of NOK47.7. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Sparebanken Øst can afford its dividend, and if the dividend could grow.

See our latest analysis for Sparebanken Øst

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sparebanken Øst paid out 99% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

OB:SPOG Historic Dividend March 19th 2023

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sparebanken Øst's earnings per share have fallen at approximately 7.9% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Sparebanken Øst has lifted its dividend by approximately 6.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Sparebanken Øst is already paying out 99% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Is Sparebanken Øst worth buying for its dividend? Not only are earnings per share shrinking, but Sparebanken Øst is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's 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. Our analysis shows 2 warning signs for Sparebanken Øst and you should be aware of them before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Sparebanken Øst is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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