Swedbank (STO:SWED A) Is Increasing Its Dividend To SEK21.70

Swedbank AB (publ)'s (STO:SWED A) dividend will be increasing from last year's payment of the same period to SEK21.70 on 2nd of April. This will take the annual payment to 8.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Swedbank

Swedbank's Payment Expected To Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

Having distributed dividends for at least 10 years, Swedbank has a long history of paying out a part of its earnings to shareholders. 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 16.4% over the next 3 years. Despite that, future payout ratio in that same time horizon is forecasted by analysts to be 76%, meaning that most of earnings is being paid out to shareholders.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was SEK10.10, compared to the most recent full-year payment of SEK21.70. This means that it has been growing its distributions at 7.9% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Swedbank might have put its house in order since then, but we remain cautious.

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. Swedbank has impressed us by growing EPS at 12% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Swedbank's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Swedbank has been making. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Swedbank (of which 1 can't be ignored!) you should know about. Is Swedbank not quite the opportunity you were looking for? Why not check out our selection of top 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.