Skandinaviska Enskilda Banken's (STO:SEB A) Shareholders Will Receive A Bigger Dividend Than Last Year

Skandinaviska Enskilda Banken AB (publ) (STO:SEB A) will increase its dividend on the 29th of March to kr6.00. The announced payment will take the dividend yield to 8.1%, which is in line with the average for the industry.

View our latest analysis for Skandinaviska Enskilda Banken

Skandinaviska Enskilda Banken Doesn't Earn Enough To Cover Its Payments

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to fall by 10.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 101%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was kr1.50 in 2012, and the most recent fiscal year payment was kr12.00. This means that it has been growing its distributions at 23% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Skandinaviska Enskilda Banken's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Skandinaviska Enskilda Banken has grown earnings per share at 19% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Skandinaviska Enskilda Banken's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Skandinaviska Enskilda Banken's payments are rock solid. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Skandinaviska Enskilda Banken (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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