Read This Before Considering Tsogo Sun Limited (JSE:TSG) For Its Upcoming R00.40 Dividend

It looks like Tsogo Sun Limited (JSE:TSG) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Tsogo Sun's shares on or after the 24th of July, you won't be eligible to receive the dividend, when it is paid on the 29th of July.

The company's next dividend payment will be R00.40 per share. Last year, in total, the company distributed R0.70 to shareholders. Looking at the last 12 months of distributions, Tsogo Sun has a trailing yield of approximately 6.1% on its current stock price of R011.40. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Tsogo Sun has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Tsogo Sun

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. Fortunately Tsogo Sun's payout ratio is modest, at just 48% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Tsogo Sun's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tsogo Sun's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Should investors buy Tsogo Sun for the upcoming dividend? Earnings per share are down very slightly in recent times, and Tsogo Sun paid out less half its profit and more than half its cash flow as dividends, which is not the worst combination but could be better. In summary, while it has some positive characteristics, we're not inclined to race out and buy Tsogo Sun today.

With that being said, if dividends aren't your biggest concern with Tsogo Sun, you should know about the other risks facing this business. For example - Tsogo Sun has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com