SunCoke Energy's (NYSE:SXC) Dividend Will Be $0.12

The board of SunCoke Energy, Inc. (NYSE:SXC) has announced that it will pay a dividend on the 1st of December, with investors receiving $0.12 per share. This makes the dividend yield 7.2%, which will augment investor returns quite nicely.

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SunCoke Energy's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, SunCoke Energy was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 89% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to fall by 1.1%. If the dividend continues along recent trends, we estimate the payout ratio could be 67%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

See our latest analysis for SunCoke Energy

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.234 in 2015, and the most recent fiscal year payment was $0.48. This implies that the company grew its distributions at a yearly rate of about 7.4% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

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. It's encouraging to see that SunCoke Energy has been growing its earnings per share at 55% a year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that SunCoke Energy could prove to be a strong dividend payer.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, SunCoke Energy has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about. Is SunCoke Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.