Sun International's (JSE:SUI) Dividend Will Be ZAR2.03

The board of Sun International Limited (JSE:SUI) has announced that it will pay a dividend on the 15th of April, with investors receiving ZAR2.03 per share. This means the annual payment is 9.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Sun International

Sun International's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Sun International was paying out 83% of earnings, but a comparatively small 43% of free cash flows. This leaves plenty of cash for reinvestment into the business.

If the trend of the last few years continues, EPS will grow by 19.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 70%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

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. Since 2014, the dividend has gone from ZAR2.65 total annually to ZAR3.51. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Sun International's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Sun International has grown earnings per share at 20% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Sun International 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Sun International that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of 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.