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Standard Bank Group Limited (JSE:SBK) has announced that it will be increasing its dividend from last year's comparable payment on the 18th of September to ZAR6.90. This takes the dividend yield to 7.1%, which shareholders will be pleased with.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Standard Bank Group's stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Standard Bank Group
Standard Bank Group's Payment Expected To Have Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.
Standard Bank Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 56%, which means that Standard Bank Group would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to expand by 22.0%. The future payout ratio could be 58% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from ZAR4.55 total annually to ZAR13.81. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Standard Bank Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
We Could See Standard Bank Group's Dividend Growing
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 encouraging to see that Standard Bank Group has been growing its earnings per share at 7.9% a year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Our Thoughts On Standard Bank Group's Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.