We Wouldn't Be Too Quick To Buy SFL Corporation Ltd. (NYSE:SFL) Before It Goes Ex-Dividend
SFL Corporation Ltd. (NYSE:SFL) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 11th of December will not receive the dividend, which will be paid on the 30th of December.
SFL's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Based on the last year's worth of payments, SFL has a trailing yield of 8.7% on the current stock price of $6.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether SFL has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for SFL
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. SFL lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If SFL didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. SFL was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SFL's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
We update our analysis on SFL every 24 hours, so you can always get the latest insights on its financial health, here.
Final Takeaway
Is SFL an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: SFL has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of SFL don't faze you, it's worth being mindful of the risks involved with this business. For example, SFL has 3 warning signs (and 1 which is concerning) we think you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.
