Morgan Sindall Group plc (LON:MGNS) The periodic dividend will increase on October 26 to £0.33, with investors receiving 10% more than last year’s £0.30. This will bring the dividend yield to an attractive 5.0%, giving shareholder returns a nice boost.

See our latest analysis for Morgan Sindall Group

Morgan Sindall Group’s dividend is well covered by earnings

If the payouts aren’t sustainable, a high return for a few years won’t matter much. The last payment was fairly easily covered by income, but it represented 269% of cash flow. This indicates that the company is more focused on returning cash flow to shareholders, but it could mean the dividend is exposed to cuts in the future.

Over the next year, EPS is expected to grow by 10.9%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we believe can be quite sustainable in the future.

Dividend volatility

The company has a long history of dividends, but it doesn’t look good with the cuts of the past. Since 2012, the dividend has been reduced from £0.42 in total per annum to £0.92. This equates to a compound annual growth rate (CAGR) of approximately 8.2% per year during this period. We’ve seen cuts in the past, so while growth looks promising, we’d be a little cautious about its track record.

The dividend should increase

With a relatively unstable dividend, it is even more important to see if earnings per share increase. We are encouraged to see that Morgan Sindall Group has increased its earnings per share by 17% per year over the past five years. The company pays out a lot of its money as a dividend, but that seems fair given the payout ratio.

Our thoughts on the Morgan Sindall Group dividend

Overall, it’s probably not a great income stock, even though the dividend is being increased right now. Although the low payout ratio is a redeeming feature, this is offset by the minimum cash to cover payouts. We would be a bit cautious to rely on this stock primarily for dividend income.

It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. Meanwhile, despite the importance of dividend payments, these are not the only factors our readers should be aware of when evaluating a company. For example, we encountered 2 warning signs for Morgan Sindall Group you should be aware, and 1 of them is a bit unpleasant. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.