Sandon Capital Investments (ASX:SNC) Is Increasing Its Dividend To AU$0.028

Sandon Capital Investments Limited (ASX:SNC) has announced that it will be increasing its dividend on the 1st of June to AU$0.028, which will be 10.0% higher than last year. This makes the dividend yield 7.3%, which is above the industry average.

Check out our latest analysis for Sandon Capital Investments

Sandon Capital Investments' Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Sandon Capital Investments' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 13.8% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Sandon Capital Investments' Dividend Has Lacked Consistency

Looking back, Sandon Capital Investments' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from AU$0.04 in 2015 to the most recent annual payment of AU$0.055. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sandon Capital Investments has seen EPS rising for the last five years, at 14% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We'd also point out that Sandon Capital Investments has issued stock equal to 22% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Sandon Capital Investments' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Sandon Capital Investments is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for Sandon Capital Investments that you should be aware of before investing. Is Sandon Capital Investments not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.