The board of Sun Life Financial Inc. (TSE:SLF) has announced that it will be paying its dividend of CA$0.92 on the 31st of December, an increased payment from last year’s comparable dividend. The payment will take the dividend yield to 4.5%, which is in line with the average for the industry.
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We aren’t too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Sun Life Financial’s dividend was only 65% of earnings, however it was paying out 99% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Looking forward, earnings per share is forecast to rise by 54.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Sun Life Financial
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was CA$1.44, compared to the most recent full-year payment of CA$3.68. This implies that the company grew its distributions at a yearly rate of about 9.8% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. We are encouraged to see that Sun Life Financial has grown earnings per share at 5.7% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Overall, we always like to see the dividend being raised, but we don’t think Sun Life Financial will make a great income stock. While Sun Life Financial is earning enough to cover the payments, the cash flows are lacking. Overall, we don’t think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 1 warning sign for Sun Life Financial 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.