Don't Buy Suncorp Group Limited (ASX:SUN) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Suncorp Group Limited (ASX:SUN) is about to trade ex-dividend in the next 2 days. This means that investors who purchase shares on or after the 15th of February will not receive the dividend, which will be paid on the 1st of April.

Suncorp Group's upcoming dividend is AU$0.26 a share, following on from the last 12 months, when the company distributed a total of AU$0.36 per share to shareholders. Calculating the last year's worth of payments shows that Suncorp Group has a trailing yield of 3.4% on the current share price of A$10.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Suncorp Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Suncorp Group is paying out an acceptable 59% of its profit, a common payout level among most companies.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Suncorp Group's earnings per share have fallen at approximately 7.8% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Suncorp Group has delivered 1.5% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Suncorp Group worth buying for its dividend? We're not overly enthused to see Suncorp Group's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Suncorp Group. To that end, you should learn about the 2 warning signs we've spotted with Suncorp Group (including 1 which is a bit unpleasant).

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.
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