Santam (JSE:SNT) Will Pay A Dividend Of ZAR9.05

Santam Ltd (JSE:SNT) will pay a dividend of ZAR9.05 on the 25th of March. Based on this payment, the dividend yield for the company will be 4.4%, which is fairly typical for the industry.

View our latest analysis for Santam

Santam Doesn't Earn Enough To Cover Its Payments

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last payment was quite easily covered by earnings, but it made up 382% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to expand by 6.9%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 138% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was ZAR6.75, compared to the most recent full-year payment of ZAR13.40. This implies that the company grew its distributions at a yearly rate of about 7.1% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Santam's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 0.5% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Santam's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Santam's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Santam 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. Taking the debate a bit further, we've identified 1 warning sign for Santam that investors need to be conscious of moving forward. 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.