Should You Buy Sun-Life Holding Co.,Ltd. (TSE:7040) For Its Upcoming Dividend?

Readers hoping to buy Sun-Life Holding Co.,Ltd. (TSE:7040) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Sun-Life HoldingLtd's shares before the 27th of September to receive the dividend, which will be paid on the 2nd of December.

The company's upcoming dividend is JP¥16.00 a share, following on from the last 12 months, when the company distributed a total of JP¥33.00 per share to shareholders. Looking at the last 12 months of distributions, Sun-Life HoldingLtd has a trailing yield of approximately 3.3% on its current stock price of JP¥1014.00. 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! As a result, readers should always check whether Sun-Life HoldingLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Sun-Life HoldingLtd

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Sun-Life HoldingLtd paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Sun-Life HoldingLtd generated enough free cash flow to afford its dividend. Luckily it paid out just 18% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Sun-Life HoldingLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Sun-Life HoldingLtd's earnings per share have risen 19% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Sun-Life HoldingLtd has lifted its dividend by approximately 1.0% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Has Sun-Life HoldingLtd got what it takes to maintain its dividend payments? We love that Sun-Life HoldingLtd is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Sun-Life HoldingLtd looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Sun-Life HoldingLtd for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Sun-Life HoldingLtd and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.