Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Recently, SpareBank 1 Østlandet (OB:SPOL) has started paying dividends to shareholders. Today it yields 4.8%. Should it have a place in your portfolio? Let’s take a look at SpareBank 1 Østlandet in more detail.
5 questions to ask before buying a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
How does SpareBank 1 Østlandet fare?
The company currently pays out 49% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 53% which, assuming the share price stays the same, leads to a dividend yield of around 6.0%. In addition to this, EPS should increase to NOK9.45.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider SpareBank 1 Østlandet as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether SPOL one as a stable dividend player.
Compared to its peers, SpareBank 1 Østlandet has a yield of 4.8%, which is on the low-side for Banks stocks.
Taking all the above into account, SpareBank 1 Østlandet is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SPOL’s future growth? Take a look at our free research report of analyst consensus for SPOL’s outlook.
- Valuation: What is SPOL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SPOL is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.