Readers hoping to buy Sun Life Financial Inc. (TSE:SLF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 26th of May, you won’t be eligible to receive this dividend, when it is paid on the 30th of June.
Sun Life Financial’s next dividend payment will be CA$0.55 per share, on the back of last year when the company paid a total of CA$2.20 to shareholders. Last year’s total dividend payments show that Sun Life Financial has a trailing yield of 4.7% on the current share price of CA$46.6. If you buy this business for its dividend, you should have an idea of whether Sun Life Financial’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Sun Life Financial paid out 53% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re encouraged by the steady growth at Sun Life Financial, with earnings per share up 7.0% on average over the last five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Sun Life Financial has increased its dividend at approximately 4.3% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is Sun Life Financial an attractive dividend stock, or better left on the shelf? Sun Life Financial has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. We’re unconvinced on the company’s merits, and think there might be better opportunities out there.
So if you want to do more digging on Sun Life Financial, you’ll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we’ve spotted 1 warning sign for Sun Life Financial you should know about.
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.
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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. 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. Thank you for reading.