KBC Group's (EBR:KBC) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of KBC Group NV (EBR:KBC) has announced that it will be increasing its dividend on the 12th of May to €6.70. This will take the annual payment from 7.6% to 11% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for KBC Group

KBC Group Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, KBC Group was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to expand by 2.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 132%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was €0.75 in 2012, and the most recent fiscal year payment was €6.00. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. KBC Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, KBC Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On KBC Group's Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for KBC Group that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.