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Is SpareBank 1 SR-Bank ASA (OB:SRBANK) a good dividend stock? How would you know? A dividend paying company with growing earnings can be rewarding in the long term. Unfortunately, one common occurrence with dividend companies is for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
A high yield and a long history of paying dividends is an appealing combination for SpareBank 1 SR-Bank. It would not be a surprise to discover that many investors buy it for the dividends. There are a few simple ways to reduce the risks of buying SpareBank 1 SR-Bank for its dividend, and we’ll go through these below.Explore this interactive chart for our latest analysis on SpareBank 1 SR-Bank!
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, SpareBank 1 SR-Bank paid out 50% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business – which could be good or bad.
We update our data on SpareBank 1 SR-Bank every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of SpareBank 1 SR-Bank’s dividend payments. The dividend has been cut by more than 20% on at least one occasion historically. During the past ten-year period, the first annual payment was øre0.83 in 2009, compared to øre4.50 last year. Dividends per share have grown at approximately 18% per year over this time. The dividends haven’t grown at precisely 18% every year, but this is a useful way to average out the historical rate of growth.
It’s not great to see that the payment has been cut in the past. We’re generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share (EPS) are growing – it’s not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. Earnings have grown at around 4.2% a year for the past five years, which is better than seeing them shrink! Growth of 4.2% is relatively anaemic growth, which we wonder about. When a business is not growing, it often makes more sense to pay higher dividends to shareholders rather than retain the cash with no way to utilise it.
We’d also point out that SpareBank 1 SR-Bank issued a meaningful number of new shares in the past year. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. SpareBank 1 SR-Bank’s payout ratio is within an average range for most market participants. Second, earnings growth has been ordinary, and its history of dividend payments is chequered – having cut its dividend at least once in the past. To conclude, we’ve spotted a couple of potential concerns with SpareBank 1 SR-Bank that may make it less than ideal candidate for dividend investors.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 7 analysts we track are forecasting for SpareBank 1 SR-Bank for free with public analyst estimates for the company.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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 firstname.lastname@example.org. 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.