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

Sandon Capital Investments Limited (ASX:SNC) will increase its dividend on the 1st of June to AU$0.028, which is 10.0% higher than last year. This makes the dividend yield 7.2%, which is above the industry average.

View our latest analysis for Sandon Capital Investments

Sandon Capital Investments' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Sandon Capital Investments was earning enough to cover the dividend, but free cash flows weren't positive. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS could expand by 13.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

Sandon Capital Investments' Dividend Has Lacked Consistency

Looking back, Sandon Capital Investments' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the first annual payment was AU$0.04, compared to the most recent full-year payment of AU$0.055. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 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

In summary, while it's always good to see the dividend being raised, we don't think Sandon Capital Investments' payments are rock solid. While Sandon Capital Investments is earning enough to cover the payments, the cash flows are lacking. We don't think Sandon Capital Investments is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.