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. Ex-dividend means that investors that purchase the stock on or after the 26th of February will not receive this dividend, which will be paid on the 31st of March.
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. Calculating the last year's worth of payments shows that Sun Life Financial has a trailing yield of 3.5% on the current share price of CA$62.93. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Sun Life Financial can afford its dividend, and if the dividend could grow.
See our latest analysis for Sun Life Financial
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 more than half (54%) of its earnings last year, which is a regular payout ratio for most companies.
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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Sun Life Financial, with earnings per share up 2.9% 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. Since the start of our data, 10 years ago, Sun Life Financial has lifted its dividend by approximately 4.3% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has Sun Life Financial got what it takes to maintain its dividend payments? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. We're unconvinced on the company's merits, and think there might be better opportunities out there.
However if you're still interested in Sun Life Financial as a potential investment, you should definitely consider some of the risks involved with Sun Life Financial. Our analysis shows 1 warning sign for Sun Life Financial and you should be aware of this before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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