Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sparebanken Møre (OB:MORG) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 26th of March will not receive the dividend, which will be paid on the 3rd of April.
Sparebanken Møre's next dividend payment will be kr17.50 per share, on the back of last year when the company paid a total of kr17.50 to shareholders. Based on the last year's worth of payments, Sparebanken Møre has a trailing yield of 7.1% on the current stock price of NOK248. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sparebanken Møre paid out 51% of its earnings to investors last year, a normal payout level for most businesses.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Sparebanken Møre's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
Sparebanken Møre also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Sparebanken Møre has lifted its dividend by approximately 3.8% a year on average.
To Sum It Up
Is Sparebanken Møre worth buying for its dividend? Sparebanken Møre has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. It doesn't appear an outstanding opportunity, but could be worth a closer look.
If you're not too concerned about Sparebanken Møre's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 2 warning signs with Sparebanken Møre and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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