Begbies Traynor Group (LON:BEG) Has Announced That It Will Be Increasing Its Dividend To UK£0.011

Begbies Traynor Group plc's (LON:BEG) dividend will be increasing on the 6th of May to UK£0.011, with investors receiving 10.0% more than last year. This will take the dividend yield from 2.2% to 2.3%, providing a nice boost to shareholder returns.

Check out our latest analysis for Begbies Traynor Group

Begbies Traynor Group's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Begbies Traynor Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand rapidly. If the dividend continues along recent trends, we believe we could see the payout ratio reaching 90%, which is definitely on the higher side, but still sustainable.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was UK£0.022 in 2011, and the most recent fiscal year payment was UK£0.03. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Begbies Traynor Group's EPS has declined at around 25% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The company has also been raising capital by issuing stock equal to 19% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Begbies Traynor Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Begbies Traynor Group that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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