Readers hoping to buy Sanne Group plc (LON:SNN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 23rd of April, you won’t be eligible to receive this dividend, when it is paid on the 20th of May.
Sanne Group’s next dividend payment will be UK£0.094 per share. Last year, in total, the company distributed UK£0.14 to shareholders. Calculating the last year’s worth of payments shows that Sanne Group has a trailing yield of 2.3% on the current share price of £6.09. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Sanne Group can afford its dividend, and if the dividend could grow.
See our latest analysis for Sanne Group
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. An unusually high payout ratio of 366% of its profit suggests something is happening other than the usual distribution of profits to shareholders.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
LSE:SNN Historical Dividend Yield April 20th 2020
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Sanne Group’s earnings per share have fallen at approximately 8.7% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past five years, Sanne Group has increased its dividend at approximately 38% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Sanne Group is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
Final Takeaway
Has Sanne Group got what it takes to maintain its dividend payments? Earnings per share are in decline and Sanne Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we’re not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that being said, if you’re still considering Sanne Group as an investment, you’ll find it beneficial to know what risks this stock is facing. To help with this, we’ve discovered 3 warning signs for Sanne Group that you should be aware of before investing in their shares.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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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