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Here's Why We're Wary Of Buying Kindred Group plc's (STO:KIND SDB) For Its Upcoming Dividend

Simply Wall St

It looks like Kindred Group plc (STO:KIND SDB) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 15th of November in order to be eligible for this dividend, which will be paid on the 21st of November.

Kindred Group's next dividend payment will be kr0.2 per share, and in the last 12 months, the company paid a total of kr0.5 per share. Calculating the last year's worth of payments shows that Kindred Group has a trailing yield of 9.6% on the current share price of SEK63.88. If you buy this business for its dividend, you should have an idea of whether Kindred Group's dividend is reliable and sustainable. So we need to investigate whether Kindred Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Kindred Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Kindred Group distributed an unsustainably high 132% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Kindred Group generated enough free cash flow to afford its dividend. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Kindred Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

OM:KIND SDB Historical Dividend Yield, November 11th 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Kindred Group's earnings per share have risen 16% per annum over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Kindred Group has lifted its dividend by approximately 33% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Has Kindred Group got what it takes to maintain its dividend payments? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Kindred Group's dividend merits.

Curious what other investors think of Kindred Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.