Avanza Bank Holding (STO:AZA) Will Pay A Larger Dividend Than Last Year At 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 5.3%, providing a nice boost to shareholder returns.

View our latest analysis for Avanza Bank Holding

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 91% 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.

Over the next year, EPS is forecast to expand by 3.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 105%, which probably can't continue without putting some pressure on the balance sheet.

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 works out to be a compound annual growth rate (CAGR) of approximately 22% 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

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 Avanza Bank Holding has been growing its earnings per share at 40% a year over the past five years. 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.

In Summary

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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Avanza Bank Holding that investors should take into consideration. 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.