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

PageGroup plc's (LON:PAGE) periodic dividend will be increasing on the 23rd of June to £0.1175, with investors receiving 4.5% more than last year's £0.112. This will take the dividend yield to an attractive 6.7%, providing a nice boost to shareholder returns.

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PageGroup's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, PageGroup's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise by 197.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 66%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for PageGroup

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 £0.105 in 2015 to the most recent total annual payment of £0.171. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% a year over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Has Limited Growth Potential

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. Earnings per share has been sinking by 22% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

PageGroup's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think PageGroup's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for PageGroup that investors need to be conscious of moving forward. Is PageGroup not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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