RS Group (LON:RS1) Will Pay A Larger Dividend Than Last Year At £0.139

RS Group plc (LON:RS1) will increase its dividend on the 25th of July to £0.139, which is 1.5% higher than last year's payment from the same period of £0.137. This will take the annual payment to 3.8% of the stock price, which is above what most companies in the industry pay.

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RS Group's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by RS Group's 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 rise by 48.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for RS Group

RS Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from £0.118 total annually to £0.224. This means that it has been growing its distributions at 6.7% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

RS Group May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Although it's important to note that RS 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.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. See if the 15 analysts are forecasting a turnaround in our free collection of analyst estimates here. Is RS Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.