Kelsian Group's (ASX:KLS) Dividend Will Be A$0.095

Kelsian Group Limited (ASX:KLS) will pay a dividend of A$0.095 on the 21st of October. This makes the dividend yield 3.5%, which will augment investor returns quite nicely.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Kelsian Group's stock price has increased by 54% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Kelsian Group's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Kelsian Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 122% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 54.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 60% which brings it into quite a comfortable range.

Check out our latest analysis for Kelsian Group

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 A$0.076 in 2015, and the most recent fiscal year payment was A$0.175. This implies that the company grew its distributions at a yearly rate of about 8.7% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Kelsian Group has been growing its earnings per share at 22% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Kelsian Group hasn't been doing.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Kelsian Group has 2 warning signs (and 1 which is significant) we think you should know about. Is Kelsian Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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