Paragon Banking Group (LON:PAG) Is Increasing Its Dividend To £0.192

Paragon Banking Group PLC (LON:PAG) will increase its dividend from last year's comparable payment on the 3rd of March to £0.192. This makes the dividend yield about the same as the industry average at 5.6%.

View our latest analysis for Paragon Banking Group

Paragon Banking Group's Dividend Forecasted To Be Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Paragon Banking Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past data isn't a guarantee for the future, Paragon Banking Group's latest earnings report puts its payout ratio at 22%, showing that the company can pay out its dividends comfortably.

Looking forward, earnings per share is forecast to fall by 44.9% over the next 3 years. Despite that, analysts estimate the future payout ratio could be 41% over the same time period, which is in a pretty comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £0.06 in 2012 to the most recent total annual payment of £0.286. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Paragon Banking 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.

The Dividend Looks Likely To Grow

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. It's encouraging to see that Paragon Banking Group has been growing its earnings per share at 26% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Paragon Banking Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Paragon Banking Group (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection 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.