Avanza Bank Holding's (STO:AZA) Upcoming Dividend Will Be Larger Than Last Year's

Avanza Bank Holding AB (publ) (STO:AZA) will increase its dividend from last year's comparable payment on the 18th of April to SEK11.50. This takes the dividend yield to 5.0%, which shareholders will be pleased with.

Check out our latest analysis for Avanza Bank Holding

Avanza Bank Holding Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Avanza Bank Holding was paying out 91% of earnings, but a comparatively small 21% of free cash flows. 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 105% 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. Since 2014, the annual payment back then was SEK1.60, compared to the most recent full-year payment of SEK11.50. This means that it has been growing its distributions at 22% per annum 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. We are encouraged to see that Avanza Bank Holding has grown earnings per share at 40% 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.

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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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. 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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