Sandon Capital Investments (ASX:SNC) Will Pay A Larger Dividend Than Last Year At AU$0.028

By
Simply Wall St
Published
July 18, 2021
ASX:SNC
Source: Shutterstock

Sandon Capital Investments Limited (ASX:SNC) has announced that it will be increasing its dividend on the 5th of November to AU$0.028, which will be 10.0% higher than last year. This will take the annual payment from 5.0% to 5.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Sandon Capital Investments

Sandon Capital Investments Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Sandon Capital Investments was paying out 206% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

If the company can't turn things around, EPS could fall by 4.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 251%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
ASX:SNC Historic Dividend July 18th 2021

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. The dividend has gone from AU$0.04 in 2015 to the most recent annual payment of AU$0.05. This implies that the company grew its distributions at a yearly rate of about 3.8% 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.

Sandon Capital Investments May Find It Hard To Grow The Dividend

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. Over the past five years, it looks as though Sandon Capital Investments' EPS has declined at around 4.2% a year. 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.

We're Not Big Fans Of Sandon Capital Investments' Dividend

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

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. To that end, Sandon Capital Investments has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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