The Goldman Sachs Group, Inc. (NYSE:GS) will increase its dividend from last year's comparable payment on the 29th of September to $2.50. This makes the dividend yield about the same as the industry average at 2.8%.
Goldman Sachs Group's Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Goldman Sachs Group was earning enough to cover the dividend, but free cash flows weren't positive. 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 10.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Goldman Sachs Group 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. Since 2012, the annual payment back then was $1.40, compared to the most recent full-year payment of $10.00. This means that it has been growing its distributions at 22% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Goldman Sachs Group has impressed us by growing EPS at 20% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In summary, while it's always good to see the dividend being raised, we don't think Goldman Sachs Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Goldman Sachs Group is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 2 warning signs for Goldman Sachs Group that you should be aware of before investing. Is Goldman Sachs Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here