Svenska Handelsbanken (STO:SHB A) Is Increasing Its Dividend To kr5.00

The board of Svenska Handelsbanken AB (publ) (STO:SHB A) has announced that it will be increasing its dividend on the 30th of March to kr5.00. This will take the dividend yield from 5.1% to 9.5%, providing a nice boost to shareholder returns.

See our latest analysis for Svenska Handelsbanken

Svenska Handelsbanken Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Svenska Handelsbanken was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 0.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 98%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was kr3.00, compared to the most recent full-year payment of kr5.00. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 2.5% per year. Svenska Handelsbanken is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Svenska Handelsbanken that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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