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The Goldman Sachs Group, Inc. (NYSE:GS) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to $2.50. The payment will take the dividend yield to 3.1%, which is in line with the average for the industry.
See our latest analysis for Goldman Sachs Group
Goldman Sachs Group's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. Goldman Sachs Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share is forecast to fall by 10.5% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 26%, which is comfortable for the company to continue in the future.
Goldman Sachs Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was $1.40, compared to the most recent full-year payment of $10.00. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Goldman Sachs Group has seen EPS rising for the last five years, at 18% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Goldman Sachs Group's prospects of growing its dividend payments in the future.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
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 1 warning sign for Goldman Sachs Group that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.