Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Kainos Group plc (LON:KNOS) is about to trade ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Kainos Group’s shares on or after the 24th of November, you won’t be eligible to receive the dividend, when it is paid on the 16th of December.
The company’s next dividend payment will be UK£0.078 per share, and in the last 12 months, the company paid a total of UK£0.23 per share. Based on the last year’s worth of payments, Kainos Group stock has a trailing yield of around 1.4% on the current share price of £15.87. If you buy this business for its dividend, you should have an idea of whether Kainos Group’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Kainos Group
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 75% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether Kainos Group generated enough free cash flow to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range 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.
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. That’s why it’s comforting to see Kainos Group’s earnings have been skyrocketing, up 28% per annum for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, seven years ago, Kainos Group has lifted its dividend by approximately 30% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Should investors buy Kainos Group for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That’s why we’re glad to see Kainos Group’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 75% and 53% respectively. Overall we’re not hugely bearish on the stock, but there are likely better dividend investments out there.
Curious what other investors think of Kainos Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are 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.
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