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PageGroup plc's (LON:PAGE) periodic dividend will be increasing on the 23rd of June to £0.1175, with investors receiving 4.5% more than last year's £0.112. This will take the dividend yield to an attractive 6.4%, providing a nice boost to shareholder returns.
We've discovered 2 warning signs about PageGroup. View them for free.
PageGroup's 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. Based on the last payment, PageGroup's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
EPS is set to grow by 151.1% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.
Check out our latest analysis for PageGroup
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from £0.11 total annually to £0.171. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
The Dividend Has Limited Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. PageGroup's EPS has fallen by approximately 22% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think PageGroup's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for PageGroup that investors should take into consideration. 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.