Shares of Banco de Sabadell, S.A. (BME:SAB) will begin trading ex-dividend in 3 days. To qualify for the dividend check of €0.016 per share, investors must have owned the shares prior to 24 December 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. What does this mean for current shareholders and potential investors? Below, I will explain how holding Banco de Sabadell can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Banco de Sabadell fit our criteria?
The company currently pays out 92% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. However, going forward, analysts expect SAB’s payout to fall into a more sustainable range of 48% of its earnings. Assuming a constant share price, this equates to a dividend yield of 6.7%. Furthermore, EPS should increase to €0.14, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Dividend payments from Banco de Sabadell have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
Compared to its peers, Banco de Sabadell produces a yield of 6.8%, which is high for Banks stocks.
Whilst there are few things you may like about Banco de Sabadell from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for SAB’s future growth? Take a look at our free research report of analyst consensus for SAB’s outlook.
- Valuation: What is SAB worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SAB is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.