Yahoo Finance Should You Buy Suncor Energy Inc. (TSE:SU) For Its Upcoming Dividend?
Readers hoping to buy Suncor Energy Inc. (TSE:SU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Suncor Energy's shares on or after the 2nd of June, you won't be eligible to receive the dividend, when it is paid on the 26th of June.
The company's next dividend payment will be CA$0.52 per share, on the back of last year when the company paid a total of CA$2.08 to shareholders. Based on the last year's worth of payments, Suncor Energy has a trailing yield of 5.3% on the current stock price of CA$39.34. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Suncor Energy can afford its dividend, and if the dividend could grow.
View our latest analysis for Suncor Energy
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Suncor Energy's payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Suncor Energy's earnings per share have been growing at 18% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Suncor Energy has lifted its dividend by approximately 15% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Has Suncor Energy got what it takes to maintain its dividend payments? Suncor Energy has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
So while Suncor Energy looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Suncor Energy that we strongly recommend you have a look at before investing in the company.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
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