Keller Group (LON:KLR) Is Paying Out A Larger Dividend Than Last Year

The board of Keller Group plc (LON:KLR) has announced that the dividend on 9th of September will be increased to £0.132, which will be 4.8% higher than last year's payment of £0.126 which covered the same period. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Keller Group

Keller Group's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Keller Group was paying only paying out a fraction of earnings, but the payment was a massive 1,871% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 10.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 38%, which is in the range that makes us comfortable with the sustainability of the dividend.

Keller Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was £0.228, compared to the most recent full-year payment of £0.359. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Although it's important to note that Keller Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Keller Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think Keller Group will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Keller Group that investors should know about before committing capital to this stock. Is Keller Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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