Avanza Bank Holding (STO:AZA) Has Announced That It Will Be Increasing Its Dividend To SEK11.75

Avanza Bank Holding AB (publ) (STO:AZA) will increase its dividend from last year's comparable payment on the 2nd of May to SEK11.75. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.

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Avanza Bank Holding's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 77% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to grow by 21.1% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77% - on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Avanza Bank Holding

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the dividend has gone from SEK1.40 total annually to SEK11.75. This works out to be a compound annual growth rate (CAGR) of approximately 24% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Avanza Bank Holding has seen EPS rising for the last five years, at 29% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Avanza Bank Holding hasn't been doing.

Our Thoughts On Avanza Bank Holding's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Avanza Bank Holding that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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