Swedbank's (STO:SWED A) Upcoming Dividend Will Be Larger Than Last Year's

The board of Swedbank AB (publ) (STO:SWED A) has announced that it will be paying its dividend of SEK15.15 on the 4th of April, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 6.5%, providing a nice boost to shareholder returns.

View our latest analysis for Swedbank

Swedbank's Earnings Will Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Swedbank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Swedbank's last earnings report, the payout ratio is at a decent 50%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, earnings per share is forecast to fall by 14.1% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 70% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SEK10.10 in 2014 to the most recent total annual payment of SEK15.15. This means that it has been growing its distributions at 4.1% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Swedbank Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Swedbank has impressed us by growing EPS at 9.9% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

We Really Like Swedbank's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Swedbank (1 is concerning!) that you should be aware of before investing. Is Swedbank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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