Morgan Sindall Group (LON:MGNS) Will Pay A Larger Dividend Than Last Year At £0.78

Morgan Sindall Group plc (LON:MGNS) will increase its dividend from last year's comparable payment on the 16th of May to £0.78. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.

See our latest analysis for Morgan Sindall Group

Morgan Sindall 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. Prior to this announcement, Morgan Sindall Group's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to fall by 0.8% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 52%, which is comfortable for the company to continue in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.27 in 2014, and the most recent fiscal year payment was £1.14. This means that it has been growing its distributions at 15% per annum over that time. Morgan Sindall 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. Morgan Sindall Group has impressed us by growing EPS at 11% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

We Really Like Morgan Sindall Group's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Morgan Sindall Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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