Today we'll take a closer look at Jaeren Sparebank (OB:JAEREN) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Jaeren Sparebank likely looks attractive to dividend investors, given its 5.1% dividend yield and five-year payment history. We'd agree the yield does look enticing. Some simple research can reduce the risk of buying Jaeren Sparebank for its dividend - read on to learn more.

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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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Jaeren Sparebank paid out 50% of its profit as dividends, over the trailing twelve month period. 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.

We update our data on Jaeren Sparebank every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Jaeren Sparebank has been paying a dividend for the past five years. During the past five-year period, the first annual payment was kr5.00 in 2014, compared to kr7.50 last year. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.

Dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

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. Over the past three years, it looks as though Jaeren Sparebank's EPS have declined at around 14% a year. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that Jaeren Sparebank's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Jaeren Sparebank's payout ratio is within an average range for most market participants. Earnings per share are down, and Jaeren Sparebank's dividend has been cut at least once in the past, which is disappointing. To conclude, we've spotted a couple of potential concerns with Jaeren Sparebank that may make it less than ideal candidate for dividend investors.

Are management backing themselves to deliver performance? Check their shareholdings in Jaeren Sparebank in our latest insider ownership analysis.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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