Here's Why We're Wary Of Buying Svenska Handelsbanken's (STO:SHB A) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Svenska Handelsbanken AB (publ) (STO:SHB A) is about to trade ex-dividend in the next three days. You can purchase shares before the 25th of March in order to receive the dividend, which the company will pay on the 31st of March.

Svenska Handelsbanken's next dividend payment will be kr4.10 per share, and in the last 12 months, the company paid a total of kr4.10 per share. Based on the last year's worth of payments, Svenska Handelsbanken has a trailing yield of 4.1% on the current stock price of SEK99.76. If you buy this business for its dividend, you should have an idea of whether Svenska Handelsbanken's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Svenska Handelsbanken

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Svenska Handelsbanken paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. Svenska Handelsbanken paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Svenska Handelsbanken's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Svenska Handelsbanken has increased its dividend at approximately 4.4% a year on average.

Final Takeaway

Should investors buy Svenska Handelsbanken for the upcoming dividend? Svenska Handelsbanken's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that being said, if you're still considering Svenska Handelsbanken as an investment, you'll find it beneficial to know what risks this stock is facing. In terms of investment risks, we've identified 1 warning sign with Svenska Handelsbanken and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

When trading Svenska Handelsbanken or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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