In This Article:
SG Fleet Group Limited's (ASX:SGF) dividend will be increasing from last year's payment of the same period to A$0.2433 on 25th of September. This will take the dividend yield to an attractive 6.5%, providing a nice boost to shareholder returns.
See our latest analysis for SG Fleet Group
SG Fleet Group Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, SG Fleet Group's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Earnings per share is forecast to rise by 13.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 113%, which probably can't continue without putting some pressure on the balance sheet.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was A$0.04, compared to the most recent full-year payment of A$0.189. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
SG Fleet Group May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 2.5% per annum over the last five years, which admittedly is a bit slow. If SG Fleet Group is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
Our Thoughts On SG Fleet Group's Dividend
In summary, while it's always good to see the dividend being raised, we don't think SG Fleet Group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for SG Fleet Group (1 is concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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.