Johnson Service Group (LON:JSG) Is Increasing Its Dividend To £0.009

The board of Johnson Service Group PLC (LON:JSG) has announced that it will be paying its dividend of £0.009 on the 3rd of November, an increased payment from last year's comparable dividend. This takes the dividend yield to 2.4%, which shareholders will be pleased with.

View our latest analysis for Johnson Service Group

Johnson Service Group's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Johnson Service Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 10.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.

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 £0.011 in 2013 to the most recent total annual payment of £0.032. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Johnson Service Group May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 2.5% per year. While growth may be thin on the ground, Johnson Service Group could always pay out a higher proportion of earnings to increase shareholder returns.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Johnson Service Group that investors need to be conscious of moving forward. Is Johnson Service Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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