Readers hoping to buy Sun Life Financial Inc. (TSE:SLF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 27th of August will not receive this dividend, which will be paid on the 30th of September.
Sun Life Financial's upcoming dividend is CA$0.53 a share, following on from the last 12 months, when the company distributed a total of CA$2.10 per share to shareholders. Based on the last year's worth of payments, Sun Life Financial stock has a trailing yield of around 3.9% on the current share price of CA$53.27. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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. Sun Life Financial paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Sun Life Financial earnings per share are up 7.1% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Sun Life Financial has lifted its dividend by approximately 3.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
From a dividend perspective, should investors buy or avoid Sun Life Financial? Sun Life Financial has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. It doesn't appear an outstanding opportunity, but could be worth a closer look.
Curious what other investors think of Sun Life Financial? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.