Serco Group's (LON:SRP) Shareholders Will Receive A Bigger Dividend Than Last Year

Serco Group plc's (LON:SRP) periodic dividend will be increasing on the 6th of October to £0.0114, with investors receiving 21% more than last year's £0.0094. The payment will take the dividend yield to 2.0%, which is in line with the average for the industry.

View our latest analysis for Serco Group

Serco Group's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. However, Serco Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 24.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 18%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.101, compared to the most recent full-year payment of £0.0306. This works out to a decline of approximately 70% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Serco Group has impressed us by growing EPS at 53% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Serco Group Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Serco Group you should be aware of, and 1 of them makes us a bit uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.