In This Article:
The board of QinetiQ Group plc (LON:QQ.) has announced that it will be increasing its dividend by 6.4% on the 25th of August to £0.05, up from last year's comparable payment of £0.047. Despite this raise, the dividend yield of 1.9% is only a modest boost to shareholder returns.
Check out our latest analysis for QinetiQ Group
QinetiQ Group's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite easily covered by QinetiQ Group's earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 57.2% over the next year. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was £0.018, compared to the most recent full-year payment of £0.073. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. QinetiQ 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.
Dividend Growth May Be Hard To Come By
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that QinetiQ Group's earnings per share has fallen at approximately 6.0% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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 can turn into a longer term trend.
In Summary
Overall, we always like to see the dividend being raised, but we don't think QinetiQ Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for QinetiQ Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.