ING Groep N.V.'s (AMS:INGA) dividend is being reduced from last year's payment covering the same period to €0.389 on the 5th of May. This means that the annual payment will be 4.6% of the current stock price, which is in line with the average for the industry.
See our latest analysis for ING Groep
ING Groep's Payment Expected To Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time.
ING Groep has established itself as a dividend paying company, given its 8-year history of distributing earnings to shareholders. Based on ING Groep's last earnings report, the payout ratio is at a decent 55%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Looking forward, EPS is forecast to rise by 92.8% over the next 3 years. Analysts estimate the future payout ratio will be 51% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.
ING Groep's Dividend Has Lacked Consistency
Looking back, ING Groep's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from €0.12 total annually to €0.58. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
Dividend Growth Is Doubtful
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that ING Groep's earnings per share has fallen at approximately 6.3% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments ING Groep has been making. We don't think ING Groep is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for ING Groep that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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