Suncorp Group (ASX:SUN) Is Increasing Its Dividend To A$0.27
Suncorp Group Limited (ASX:SUN) will increase its dividend from last year's comparable payment on the 25th of September to A$0.27. This will take the annual payment to 4.5% of the stock price, which is above what most companies in the industry pay.
View our latest analysis for Suncorp Group
Suncorp Group's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 102% of 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 30.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 49%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was A$0.412 in 2013, and the most recent fiscal year payment was A$0.60. This implies that the company grew its distributions at a yearly rate of about 3.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 3.5% per annum over the last five years, which admittedly is a bit slow. Suncorp Group is struggling to find viable investments, so it is returning more to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Our Thoughts On Suncorp Group's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Suncorp Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Suncorp Group has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
