Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Shine Corporate Ltd (ASX:SHJ) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 12th of March will not receive the dividend, which will be paid on the 27th of March.
Shine's next dividend payment will be AU$0.015 per share, and in the last 12 months, the company paid a total of AU$0.04 per share. Calculating the last year's worth of payments shows that Shine has a trailing yield of 4.5% on the current share price of A$0.885. 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! As a result, readers should always check whether Shine has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Shine paid out a comfortable 34% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Shine's earnings are down 3.7% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Shine has delivered 7.6% dividend growth per year on average over the past seven years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Shine? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Shine looks okay on this analysis, although it doesn't appear a stand-out opportunity.
While it's tempting to invest in Shine for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Shine that we recommend you consider before investing in the business.
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.
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.
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