Sun International (JSE:SUI) Has Announced That It Will Be Increasing Its Dividend To ZAR2.37

Sun International Limited (JSE:SUI) will increase its dividend on the 14th of April to ZAR2.37, which is 17% higher than last year's payment from the same period of ZAR2.03. This takes the annual payment to 8.8% of the current stock price, which is about average for the industry.

Check out our latest analysis for Sun International

Sun International's Future Dividend Projections Appear Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Sun International was paying out 88% of earnings, but a comparatively small 43% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share could rise by 9.1% over the next year if the trend from the last few years continues. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 74% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was ZAR2.08 in 2015, and the most recent fiscal year payment was ZAR3.64. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Sun International might have put its house in order since then, but we remain cautious.

The Dividend Has 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. Sun International has seen EPS rising for the last five years, at 9.1% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Sun International's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Sun International is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Sun International that investors should take into consideration. Is Sun International 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.