PSG Financial Services Limited (JSE:KST) has announced that it will be increasing its periodic dividend on the 6th of November to ZAR0.135, which will be 23% higher than last year's comparable payment amount of ZAR0.11. This takes the annual payment to 2.6% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for PSG Financial Services
PSG Financial Services' Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite comfortably covered by PSG Financial Services' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
Over the next year, EPS could expand by 11.7% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 48% by next year, which is in a pretty sustainable range.
PSG Financial Services Is Still Building Its Track Record
PSG Financial Services' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2014, the dividend has gone from ZAR0.08 total annually to ZAR0.36. This means that it has been growing its distributions at 18% per annum over that time. PSG Financial Services has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that PSG Financial Services has been growing its earnings per share at 12% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
Our Thoughts On PSG Financial Services' Dividend
In summary, while it's always good to see the dividend being raised, we don't think PSG Financial Services' payments are rock solid. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.