Korn Ferry (NYSE:KFY) will increase its dividend on the 29th of July to US$0.15. Although the dividend is now higher, the yield is only 0.9%, which is below the industry average.
Korn Ferry's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Korn Ferry was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 4.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 9.0%, which is comfortable for the company to continue in the future.
Korn Ferry Is Still Building Its Track Record
It is great to see that Korn Ferry has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the dividend has gone from US$0.40 to US$0.60. This works out to be a compound annual growth rate (CAGR) of approximately 5.2% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Korn Ferry to be a consistent dividend paying stock.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Korn Ferry has impressed us by growing EPS at 33% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
We Really Like Korn Ferry's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.
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. As an example, we've identified 1 warning sign for Korn Ferry that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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