Southern Cross Electrical Engineering Limited (ASX:SXE) has announced that it will pay a dividend of A$0.025 per share on the 9th of April. The payment will take the dividend yield to 3.3%, which is in line with the average for the industry.
View our latest analysis for Southern Cross Electrical Engineering
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Southern Cross Electrical Engineering was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 27.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of A$0.027 in 2015 to the most recent total annual payment of A$0.06. This implies that the company grew its distributions at a yearly rate of about 8.3% over that duration. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Southern Cross Electrical Engineering has seen EPS rising for the last five years, at 13% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Southern Cross Electrical Engineering that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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