SunCoke Energy (NYSE:SXC) Is Paying Out A Larger Dividend Than Last Year

SunCoke Energy, Inc.'s (NYSE:SXC) dividend will be increasing from last year's payment of the same period to $0.10 on 1st of December. This takes the dividend yield to 4.4%, which shareholders will be pleased with.

Check out our latest analysis for SunCoke Energy

SunCoke Energy's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by SunCoke Energy's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 1.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 57%, which we are pretty comfortable with and we think is feasible on an earnings basis.

SunCoke Energy's Dividend Has Lacked Consistency

It's comforting to see that SunCoke Energy has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of $0.234 in 2014 to the most recent total annual payment of $0.40. This implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

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. SunCoke Energy's earnings per share has shrunk at 23% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

In Summary

Overall, we always like to see the dividend being raised, but we don't think SunCoke Energy will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think SunCoke Energy is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 5 warning signs for SunCoke Energy (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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