Sygnia (JSE:SYG) Is Due To Pay A Dividend Of ZAR0.98

The board of Sygnia Limited (JSE:SYG) has announced that it will pay a dividend of ZAR0.98 per share on the 30th of June. This makes the dividend yield 7.6%, which is above the industry average.

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Estimates Indicate Sygnia's Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Sygnia's dividend made up quite a large proportion of earnings but only 59% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS could expand by 15.0% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 97%, which is a bit high and could start applying pressure to the balance sheet.

Check out our latest analysis for Sygnia

Sygnia's Dividend Has Lacked Consistency

Looking back, Sygnia's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of ZAR0.50 in 2016 to the most recent total annual payment of ZAR2.17. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Sygnia has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sygnia has impressed us by growing EPS at 15% 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

In summary, while it's always good to see the dividend being raised, we don't think Sygnia's payments are rock solid. 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 would probably look elsewhere for an income investment.

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 Sygnia that investors should take into consideration. Is Sygnia 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.