Morgan Sindall Group's (LON:MGNS) Dividend Will Be Increased To £0.36
Morgan Sindall Group plc (LON:MGNS) will increase its dividend on the 26th of October to £0.36, which is 9.1% higher than last year's payment from the same period of £0.33. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.
See our latest analysis for Morgan Sindall Group
Morgan Sindall Group's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Morgan Sindall Group's was paying out quite a large proportion of earnings and 82% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.
Over the next year, EPS is forecast to expand by 71.7%. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from £0.42 total annually to £1.01. This means that it has been growing its distributions at 9.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Morgan Sindall Group might have put its house in order since then, but we remain cautious.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Morgan Sindall Group hasn't seen much change in its earnings per share over the last five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Morgan Sindall Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Morgan Sindall Group is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Morgan Sindall Group that investors should know about before committing capital to this stock. Is Morgan Sindall Group not quite the opportunity you were looking for? Why not check out our selection of top 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.
