The board of SunCoke Energy, Inc. (NYSE:SXC) has announced that it will pay a dividend of $0.12 per share on the 2nd of March. This makes the dividend yield 5.8%, which will augment investor returns quite nicely.
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. SunCoke Energy was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Over the next year, EPS is forecast to fall by 3.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 68%, which we are pretty comfortable with and we think is feasible on an earnings basis.
View our latest analysis for SunCoke Energy
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.234 in 2016, and the most recent fiscal year payment was $0.48. This means that it has been growing its distributions at 7.4% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we’re not certain this dividend stock would be ideal for someone intending to live on the income.
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. SunCoke Energy has impressed us by growing EPS at 55% per year over the past five years. The company’s earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that SunCoke Energy could prove to be a strong dividend payer.
In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about SunCoke Energy’s payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments SunCoke Energy has been making. We would probably look elsewhere for an income investment.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We’ve spotted 3 warning signs for SunCoke Energy (of which 2 are a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
