Begbies Traynor Group (LON:BEG) Has Announced That It Will Be Increasing Its Dividend To £0.027

The board of Begbies Traynor Group plc (LON:BEG) has announced that it will be increasing its dividend by 3.8% on the 6th of November to £0.027, up from last year's comparable payment of £0.026. This will take the dividend yield to an attractive 4.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Begbies Traynor Group

Begbies Traynor Group's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 437% of what it was earning and 81% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 59%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Begbies Traynor Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was £0.022, compared to the most recent full-year payment of £0.04. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year 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.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Begbies Traynor Group's earnings per share has shrunk at 14% a year over the past five years. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For instance, we've picked out 3 warning signs for Begbies Traynor Group that investors should take into consideration. Is Begbies Traynor Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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