Stock Analysis

Sun Life Financial (TSE:SLF) Has Announced That It Will Be Increasing Its Dividend To CA$0.69

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The board of Sun Life Financial Inc. (TSE:SLF) has announced that it will be increasing its dividend on the 30th of June to CA$0.69. The announced payment will take the dividend yield to 4.2%, which is in line with the average for the industry.

See our latest analysis for Sun Life Financial

Sun Life Financial's Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Sun Life Financial's earnings easily covered the dividend, but free cash flows were negative. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

Over the next year, EPS is forecast to fall by 9.3%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 46%, which is comfortable for the company to continue in the future.

TSX:SLF Historic Dividend May 15th 2022

Sun Life Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was CA$1.44 in 2012, and the most recent fiscal year payment was CA$2.76. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Sun Life Financial has seen EPS rising for the last five years, at 10% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On Sun Life Financial's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Sun Life Financial's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Sun Life Financial that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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