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Morgan Sindall Group plc's (LON:MGNS) dividend will be increasing from last year's payment of the same period to £0.68 on 18th of May. This will take the dividend yield to an attractive 6.0%, providing a nice boost to shareholder returns.
View our latest analysis for Morgan Sindall Group
Morgan Sindall Group's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Morgan Sindall Group was paying out quite a large proportion of both earnings and cash flow, with the dividend being 109% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
The next year is set to see EPS grow by 87.3%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 48% which brings it into quite a comfortable range.
Dividend Volatility
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 dividend has gone from an annual total of £0.42 in 2013 to the most recent total annual payment of £1.01. This implies that the company grew its distributions at a yearly rate of about 9.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Morgan Sindall Group might have put its house in order since then, but we remain cautious.
Morgan Sindall Group May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 2.1% a year for the past five years, which isn't massive but still better than seeing them shrink. Morgan Sindall Group's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
Morgan Sindall Group's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Morgan Sindall Group 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.