Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Suncorp Group Limited (ASX:SUN) has been paying a dividend to shareholders. Today it yields 5.2%. Does Suncorp Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How does Suncorp Group fare?
The current trailing twelve-month payout ratio for the stock is 89%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 79%, leading to a dividend yield of around 5.9%. Moreover, EPS is also forecasted to fall to A$0.32 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from Suncorp Group fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
Relative to peers, Suncorp Group has a yield of 5.2%, which is high for Insurance stocks but still below the market’s top dividend payers.
If you are building an income portfolio, then Suncorp Group is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for SUN’s future growth? Take a look at our free research report of analyst consensus for SUN’s outlook.
- Valuation: What is SUN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SUN is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.