Morgan Sindall Group (LON:MGNS) Is Paying Out A Larger Dividend Than Last Year

Morgan Sindall Group plc (LON:MGNS) will increase its dividend from last year's comparable payment on the 18th of May to £0.68. This will take the annual payment to 6.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Morgan Sindall Group

Morgan Sindall Group's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. At the time of the last dividend payment, Morgan Sindall Group was paying out a very large proportion of what it was earning and 109% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 87.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 48% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.42 in 2013, and the most recent fiscal year payment was £1.01. This means that it has been growing its distributions at 9.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

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. However, Morgan Sindall Group has only grown its earnings per share at 2.1% per annum over the past five years. Slow growth and a high payout ratio could mean that Morgan Sindall Group has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Morgan Sindall Group is a great stock to add to your portfolio if income is your focus.

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. As an example, we've identified 3 warning signs for Morgan Sindall Group that you should be aware of before investing. Is Morgan Sindall Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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