SpareBank 1 SR-Bank's (OB:SRBNK) Shareholders Will Receive A Bigger Dividend Than Last Year

SpareBank 1 SR-Bank ASA (OB:SRBNK) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of April to NOK7.50. This takes the annual payment to 5.5% of the current stock price, which is about average for the industry.

See our latest analysis for SpareBank 1 SR-Bank

SpareBank 1 SR-Bank's Payment Expected To Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Having distributed dividends for at least 10 years, SpareBank 1 SR-Bank has a long history of paying out a part of its earnings to shareholders. Based on SpareBank 1 SR-Bank's last earnings report, the payout ratio is at a decent 46%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, earnings per share is forecast to fall by 1.3% over the next 3 years. Despite that, analysts estimate the future payout ratio could be 69% over the same time period, which is in a pretty comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NOK1.50 in 2014, and the most recent fiscal year payment was NOK7.50. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. SpareBank 1 SR-Bank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. SpareBank 1 SR-Bank has seen EPS rising for the last five years, at 13% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

SpareBank 1 SR-Bank Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for SpareBank 1 SR-Bank that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.