Knights Group Holdings plc (LON:KGH) Looks Interesting, And It's About To Pay A Dividend

Knights Group Holdings plc (LON:KGH) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Knights Group Holdings' shares on or after the 31st of August, you won't be eligible to receive the dividend, when it is paid on the 29th of September.

The company's upcoming dividend is UK£0.025 a share, following on from the last 12 months, when the company distributed a total of UK£0.04 per share to shareholders. Calculating the last year's worth of payments shows that Knights Group Holdings has a trailing yield of 4.7% on the current share price of £0.85. If you buy this business for its dividend, you should have an idea of whether Knights Group Holdings's dividend is reliable and sustainable. As a result, readers should always check whether Knights Group Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Knights Group Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Knights Group Holdings paying out a modest 43% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Knights Group Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Knights Group Holdings, with earnings per share up 7.5% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, five years ago, Knights Group Holdings has lifted its dividend by approximately 27% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Is Knights Group Holdings worth buying for its dividend? Earnings per share have been growing moderately, and Knights Group Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Knights Group Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.

On that note, you'll want to research what risks Knights Group Holdings is facing. Our analysis shows 4 warning signs for Knights Group Holdings and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking 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.