The board of Morgan Sindall Group plc (LON:MGNS) has announced that it will be paying its dividend of £0.36 on the 26th of October, an increased payment from last year's comparable dividend. This will take the annual payment to 5.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Morgan Sindall Group

Morgan Sindall Group's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Morgan Sindall Group's was paying out quite a large proportion of earnings and 85% 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.

The next year is set to see EPS grow 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. historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.27 in 2013, and the most recent fiscal year payment was £1.04. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Morgan Sindall Group May Find It Hard To Grow The Dividend

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. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. 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, we always like to see the dividend being raised, but we don't think Morgan Sindall Group will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for Morgan Sindall Group that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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