Serco Group's (LON:SRP) Dividend Will Be Increased To £0.0114
The board of Serco Group plc (LON:SRP) has announced that the dividend on 6th of October will be increased to £0.0114, which will be 21% higher than last year's payment of £0.0094 which covered the same period. Based on this payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.
View our latest analysis for Serco Group
Serco Group's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Serco Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to fall by 24.9%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 18%, which is comfortable for the company to continue in the future.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.101 in 2013, and the most recent fiscal year payment was £0.0306. This works out to a decline of approximately 70% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Looks Likely To Grow
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Serco Group has seen EPS rising for the last five years, at 53% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Serco Group's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Serco Group you should be aware of, and 1 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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.
