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Income Investors Should Know That The Sage Group plc (LON:SGE) Goes Ex-Dividend Soon

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Simply Wall St
·4 min read
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It looks like The Sage Group plc (LON:SGE) is about to go ex-dividend in the next 3 days. You can purchase shares before the 6th of February in order to receive the dividend, which the company will pay on the 2nd of March.

Sage Group's upcoming dividend is UK£0.11 a share, following on from the last 12 months, when the company distributed a total of UK£0.17 per share to shareholders. Calculating the last year's worth of payments shows that Sage Group has a trailing yield of 2.3% on the current share price of £7.384. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Sage Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Sage Group is paying out an acceptable 69% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 42% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

LSE:SGE Historical Dividend Yield, February 2nd 2020
LSE:SGE Historical Dividend Yield, February 2nd 2020

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Sage Group earnings per share are up 7.2% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sage Group has delivered an average of 8.0% per year annual increase in its dividend, based on the past ten years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Sage Group got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Sage Group's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. To summarise, Sage Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

Wondering what the future holds for Sage Group? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.