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The board of QinetiQ Group plc (LON:QQ.) has announced that it will pay a dividend on the 2nd of February, with investors receiving £0.026 per share. This takes the annual payment to 2.5% of the current stock price, which is about average for the industry.
See our latest analysis for QinetiQ Group
QinetiQ Group's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, QinetiQ Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Looking forward, earnings per share is forecast to rise by 60.9% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.
QinetiQ Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.038 total annually to £0.077. This means that it has been growing its distributions at 7.3% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though QinetiQ Group's EPS has declined at around 3.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think QinetiQ Group's payments are rock solid. While QinetiQ Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for QinetiQ Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.