Stock Analysis

PageGroup's (LON:PAGE) Upcoming Dividend Will Be Larger Than Last Year's

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The board of PageGroup plc (LON:PAGE) has announced that it will be increasing its dividend by 0.7% on the 14th of October to £0.3162, up from last year's comparable payment of £0.314. This will take the annual payment to 9.4% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for PageGroup

PageGroup'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. However, based ont he last payment, PageGroup was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 95% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS is forecast to fall by 5.2%. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 82%, meaning that most of the company's earnings are being paid out to shareholders.

LSE:PAGE Historic Dividend August 11th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.0937 in 2012, and the most recent fiscal year payment was £0.419. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. PageGroup has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that PageGroup has been growing its earnings per share at 15% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for PageGroup's prospects of growing its dividend payments in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think PageGroup will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments PageGroup has been making. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for PageGroup that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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