PageGroup plc (LON:PAGE) has announced that it will be increasing its periodic dividend on the 14th of October to £0.3162, which will be 0.7% higher than last year's comparable payment amount of £0.314. This takes the dividend yield to 9.4%, which shareholders will be pleased with.
PageGroup's Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, based ont he last payment, PageGroup was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 95% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.
EPS is set to fall by 5.2% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 82%, which is definitely on the higher side.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was £0.0937 in 2012, and the most recent fiscal year payment was £0.419. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that PageGroup has grown earnings per share at 15% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Overall, we always like to see the dividend being raised, but we don't think PageGroup will make a great income stock. While PageGroup is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for PageGroup that investors should know about before committing capital to this stock. Is PageGroup not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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