How Does PageGroup plc (LON:PAGE) Fare As A Dividend Stock?

January 21, 2020
  •  Updated
September 25, 2022
LSE:PAGE
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Dividend paying stocks like PageGroup plc (LON:PAGE) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A high yield and a long history of paying dividends is an appealing combination for PageGroup. We'd guess that plenty of investors have purchased it for the income. Some simple research can reduce the risk of buying PageGroup for its dividend - read on to learn more.

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LSE:PAGE Historical Dividend Yield, January 22nd 2020
LSE:PAGE Historical Dividend Yield, January 22nd 2020

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, PageGroup paid out 39% of its profit as dividends. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. PageGroup paid out 50% of its cash flow as dividends last year, which is within a reasonable range for the average corporation. It's positive to see that PageGroup'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.

While the above analysis focuses on dividends relative to a company's earnings, we do note PageGroup's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on PageGroup every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. PageGroup has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was UK£0.08 in 2010, compared to UK£0.26 last year. Dividends per share have grown at approximately 13% per year over this time.

It's rare to find a company that has grown its dividends rapidly over ten years and not had any notable cuts, but PageGroup has done it, which we really like.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. It's good to see PageGroup has been growing its earnings per share at 20% a year over the past five years. A company paying out less than a quarter of its earnings as dividends, and growing earnings at more than 10% per annum, looks to be right in the cusp of its growth phase. At the right price, we might be interested.

Conclusion

To summarise, shareholders should always check that PageGroup's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Above all, we're glad to see that PageGroup pays out a low fraction of its earnings and, while it paid a higher percentage of cashflow, this also was within a normal range. We like that it has been delivering solid improvement in its earnings per share, and relatively consistent dividend payments. Overall we think PageGroup scores well on our analysis. It's not quite perfect, but we'd definitely be keen to take a closer look.

Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 9 analysts we track are forecasting for PageGroup for free with public analyst estimates for the company.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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