Morgan Sindall Group plc (LON:MGNS) Looks Interesting, And It's About To Pay A Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Morgan Sindall Group plc (LON:MGNS) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 29th of April in order to be eligible for this dividend, which will be paid on the 19th of May.

Morgan Sindall Group's next dividend payment will be UK£0.40 per share, and in the last 12 months, the company paid a total of UK£0.80 per share. Based on the last year's worth of payments, Morgan Sindall Group stock has a trailing yield of around 3.6% on the current share price of £22.25. If you buy this business for its dividend, you should have an idea of whether Morgan Sindall Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Morgan Sindall Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Morgan Sindall Group is paying out an acceptable 61% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Morgan Sindall Group generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 5.6% of its cash flow last year.

It's positive to see that Morgan Sindall Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Morgan Sindall Group's earnings have been skyrocketing, up 20% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Morgan Sindall Group has lifted its dividend by approximately 6.7% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Has Morgan Sindall Group got what it takes to maintain its dividend payments? We like Morgan Sindall Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about Morgan Sindall Group, and we would prioritise taking a closer look at it.

In light of that, while Morgan Sindall Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 5 warning signs for Morgan Sindall Group that we recommend you consider before investing in the business.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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