Bank Handlowy w Warszawie (WSE:BHW) Is Reducing Its Dividend To PLN10.29

Bank Handlowy w Warszawie S.A.'s (WSE:BHW) dividend is being reduced by 7.7% to PLN10.29 per share on 14th of July, in comparison to last year's comparable payment of PLN11.15. The dividend yield of 9.6% is still a nice boost to shareholder returns, despite the cut.

We've discovered 2 warning signs about Bank Handlowy w Warszawie. View them for free.

Bank Handlowy w Warszawie's Payment Expected To Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having distributed dividends for at least 10 years, Bank Handlowy w Warszawie has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 77%, which means that Bank Handlowy w Warszawie would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, earnings per share is forecast to fall by 17.8% over the next 3 years. Fortunately, the future payout ratio could reach 94% in the same 3 years as estimated by analysts, which is on the higher side, but certainly still feasible.

Check out our latest analysis for Bank Handlowy w Warszawie

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from PLN7.43 total annually to PLN11.15. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Bank Handlowy w Warszawie has been growing its earnings per share at 31% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Bank Handlowy w Warszawie is not retaining those earnings to reinvest in growth.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Bank Handlowy w Warszawie has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Is Bank Handlowy w Warszawie not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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