Read This Before Considering Santam Ltd (JSE:SNT) For Its Upcoming R09.05 Dividend

Readers hoping to buy Santam Ltd (JSE:SNT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Santam's shares on or after the 19th of March, you won't be eligible to receive the dividend, when it is paid on the 25th of March.

The company's next dividend payment will be R09.05 per share. Last year, in total, the company distributed R14.00 to shareholders. Based on the last year's worth of payments, Santam stock has a trailing yield of around 4.6% on the current share price of R0301.92. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Santam can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Santam

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Santam paid out 60% of its earnings to investors last year, a normal payout level for most businesses.

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

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Santam's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Santam has delivered 7.6% dividend growth per year on average over the past 10 years.

Final Takeaway

Is Santam worth buying for its dividend? Santam's earnings are effectively flat over recent years, even as the company pays out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Santam, you should know about the other risks facing this business. In terms of investment risks, we've identified 1 warning sign with Santam and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.