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

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 makes the dividend yield 10%, which is above the industry average.

Check out our latest analysis for Svenska Handelsbanken

Svenska Handelsbanken Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Svenska Handelsbanken's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 0.08%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 98%, which probably can't continue putting some pressure on the balance sheet.

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. The first annual payment during the last 10 years was kr3.00 in 2012, and the most recent fiscal year payment was kr5.00. This means that it has been growing its distributions at 5.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

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. Earnings have grown at around 2.5% a year for the past five years, which isn't massive but still better than seeing them shrink. Growth of 2.5% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Svenska Handelsbanken that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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