QinetiQ Group (LON:QQ.) Has Announced That It Will Be Increasing Its Dividend To £0.024

The board of QinetiQ Group plc (LON:QQ.) has announced that the dividend on 3rd of February will be increased to £0.024, which will be 4.3% higher than last year's payment of £0.023 which covered the same period. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

See our latest analysis for QinetiQ Group

QinetiQ Group's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, QinetiQ Group was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 21.4% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 31%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.018 in 2012 to the most recent total annual payment of £0.074. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that QinetiQ Group has grown earnings per share at 5.3% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for QinetiQ Group's prospects of growing its dividend payments in the future.

Our Thoughts On QinetiQ Group's Dividend

Overall, this is a reasonable dividend, and it being raised is an added bonus. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for QinetiQ Group (of which 1 is significant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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