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The board of Morgan Sindall Group plc (LON:MGNS) has announced that the dividend on 15th of May will be increased to £0.90, which will be 15% higher than last year's payment of £0.78 which covered the same period. This makes the dividend yield about the same as the industry average at 3.6%.
See our latest analysis for Morgan Sindall Group
Morgan Sindall Group's Future Dividend Projections Appear Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Morgan Sindall Group was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to expand by 1.9%. If the dividend continues on this path, the payout ratio could be 53% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.27 in 2015, and the most recent fiscal year payment was £1.2. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Morgan Sindall Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Morgan Sindall Group has impressed us by growing EPS at 12% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Morgan Sindall Group Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Morgan Sindall Group that investors should know about before committing capital to this stock. Is Morgan Sindall Group not quite the opportunity you were looking for? Why not check out our selection of top 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.