Swedbank (STO:SWED A) Has Announced That It Will Be Increasing Its Dividend To SEK21.70

Swedbank AB (publ) (STO:SWED A) will increase its dividend from last year's comparable payment on the 2nd of April to SEK21.70. This makes the dividend yield 8.4%, which is above the industry average.

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Swedbank's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Swedbank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 70%, which means that Swedbank would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 16.9% over the next 3 years. However, analysts forecast that the future payout ratio could reach 79% over the same time period. This is definitely on the higher side of what we consider sustainable.

Check out our latest analysis for Swedbank

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was SEK11.35 in 2015, and the most recent fiscal year payment was SEK21.70. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

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 Swedbank has been growing its earnings per share at 12% a 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.

Our Thoughts On Swedbank's Dividend

Overall, we always like to see the dividend being raised, but we don't think Swedbank will make a great income stock. While Swedbank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

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. To that end, Swedbank has 2 warning signs (and 1 which is a bit concerning) we think you should know about. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.