Could Sandnes Sparebank (OB:SADG) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on the income from dividends, it’s important to be a lot more stringent with your investments than the average punter.
In this case, Sandnes Sparebank likely looks attractive to dividend investors, given its 8.6% dividend yield and eight-year payment history. It sure looks interesting on these metrics – but there’s always more to the story . Some simple research can reduce the risk of buying Sandnes Sparebank for its dividend – read on to learn more.
Explore this interactive chart for our latest analysis on Sandnes Sparebank!
OB:SADG Historical Dividend Yield, March 11th 2020
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company’s net income after tax. In the last year, Sandnes Sparebank paid out 75% of its profit as dividends. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.
Consider getting our latest analysis on Sandnes Sparebank’s financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. The first recorded dividend for Sandnes Sparebank, in the last decade, was eight years ago. It’s good to see that Sandnes Sparebank has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past eight-year period, the first annual payment was kr2.50 in 2012, compared to kr5.90 last year. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Sandnes Sparebank’s dividend payments have fluctuated, so it hasn’t grown 11% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
Sandnes Sparebank has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, but it might be worth considering if the business has turned a corner.
Dividend Growth Potential
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 not great to see that Sandnes Sparebank’s have fallen at approximately 5.4% over the past five years. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company’s dividend.
Conclusion
To summarise, shareholders should always check that Sandnes Sparebank’s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Sandnes Sparebank has an acceptable payout ratio. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. To conclude, we’ve spotted a couple of potential concerns with Sandnes Sparebank that may make it less than ideal candidate for dividend investors.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 1 warning sign for Sandnes Sparebank that investors should know about before committing capital to this stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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