Avanza Bank Holding's (STO:AZA) Dividend Is Being Reduced To SEK7.50

Avanza Bank Holding AB (publ) (STO:AZA) has announced that on 6th of April, it will be paying a dividend ofSEK7.50, which a reduction from last year's comparable dividend. The yield is still above the industry average at 3.2%.

View our latest analysis for Avanza Bank Holding

Avanza Bank Holding's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Avanza Bank Holding was paying out 70% of earnings, but a comparatively small 15% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 33.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 66% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was SEK2.00 in 2013, and the most recent fiscal year payment was SEK7.50. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Avanza Bank Holding has grown earnings per share at 33% per 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.

We Really Like Avanza Bank Holding's Dividend

Overall, we think that Avanza Bank Holding could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Avanza Bank Holding that investors need to be conscious of moving forward. Is Avanza Bank Holding not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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