Avanza Bank Holding (STO:AZA) Is Increasing Its Dividend To SEK11.50

Avanza Bank Holding AB (publ) (STO:AZA) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of April to SEK11.50. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.

See our latest analysis for Avanza Bank Holding

Avanza Bank Holding Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 91% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

Earnings per share is forecast to rise by 3.7% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 106% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SEK1.60 in 2014, and the most recent fiscal year payment was SEK11.50. This means that it has been growing its distributions at 22% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Avanza Bank Holding has seen EPS rising for the last five years, at 40% 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

In summary, while it's always good to see the dividend being raised, we don't think Avanza Bank Holding's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic 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. 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.