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The board of Genus plc (LON:GNS) has announced that it will pay a dividend on the 4th of April, with investors receiving £0.103 per share. This means the annual payment will be 1.7% of the current stock price, which is lower than the industry average.
View our latest analysis for Genus
Genus' Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Genus' Could Struggle to Maintain Dividend Payments In The Future
Genus' Future Dividends May Potentially Be At Risk
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Genus is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 480%, which is unsustainable.
Genus Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.177 in 2015, and the most recent fiscal year payment was £0.32. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Has Limited Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Earnings per share has been sinking by 21% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
Our Thoughts On Genus' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. This company is not in the top tier of income providing stocks.