K&S (ASX:KSC) Will Pay A Dividend Of A$0.08

The board of K&S Corporation Limited (ASX:KSC) has announced that it will pay a dividend on the 4th of November, with investors receiving A$0.08 per share. This makes the dividend yield 4.7%, which will augment investor returns quite nicely.

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K&S' Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, K&S was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Over the next year, EPS could expand by 19.6% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 74% by next year, which is in a pretty sustainable range.

View our latest analysis for K&S

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 A$0.07 in 2015, and the most recent fiscal year payment was A$0.16. This means that it has been growing its distributions at 8.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. K&S might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that K&S has grown earnings per share at 20% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about K&S' payments, as there could be some issues with sustaining them into the future. While K&S is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for K&S that investors should take into consideration. 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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