Dividend Investors: Don't Be Too Quick To Buy Sasfin Holdings Limited (JSE:SFN) For Its Upcoming Dividend

By
Simply Wall St
Published
March 19, 2022
JSE:SFN
Source: Shutterstock

Sasfin Holdings Limited (JSE:SFN) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Sasfin Holdings' shares before the 23rd of March in order to be eligible for the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be R0.34 per share, and in the last 12 months, the company paid a total of R0.68 per share. Based on the last year's worth of payments, Sasfin Holdings stock has a trailing yield of around 2.3% on the current share price of ZAR29. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Sasfin Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sasfin Holdings paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Sasfin Holdings paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see how much of its profit Sasfin Holdings paid out over the last 12 months.

historic-dividend
JSE:SFN Historic Dividend March 19th 2022

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sasfin Holdings's earnings per share have fallen at approximately 16% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sasfin Holdings's dividend payments per share have declined at 5.4% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Is Sasfin Holdings an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Sasfin Holdings's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Sasfin Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Sasfin Holdings don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 3 warning signs for Sasfin Holdings (of which 2 are a bit concerning!) you should know about.

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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