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The board of Foresight Group Holdings Limited (LON:FSG) has announced that it will pay a dividend on the 31st of January, with investors receiving £0.074 per share. The dividend yield will be 5.3% based on this payment which is still above the industry average.
View our latest analysis for Foresight Group Holdings
Foresight Group Holdings' Payment Could Potentially Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 87% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 103.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Foresight Group Holdings Is Still Building Its Track Record
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 3 years was £0.017 in 2021, and the most recent fiscal year payment was £0.222. This works out to be a compound annual growth rate (CAGR) of approximately 135% a year over that time. Foresight Group Holdings 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.
Foresight Group Holdings' Dividend Might Lack Growth
The company's investors will be pleased to have been receiving dividend income for some time. Foresight Group Holdings has impressed us by growing EPS at 71% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Foresight Group Holdings is not retaining those earnings to reinvest in growth.
Our Thoughts On Foresight Group Holdings' Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.