Foresight Group Holdings' (LON:FSG) Shareholders Will Receive A Bigger Dividend Than Last Year

Foresight Group Holdings Limited (LON:FSG) will increase its dividend from last year's comparable payment on the 3rd of October to £0.168. This takes the dividend yield to 5.3%, which shareholders will be pleased with.

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Foresight Group Holdings' Projected Earnings Seem Likely To Cover Future Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Foresight Group Holdings was paying out 84% of earnings, but a comparatively small 64% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 118.6%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 50% which brings it into quite a comfortable range.

See our latest analysis for Foresight Group Holdings

Foresight Group Holdings Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the dividend has gone from £0.017 total annually to £0.242. This implies that the company grew its distributions at a yearly rate of about 94% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Foresight Group Holdings Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Foresight Group Holdings has impressed us by growing EPS at 74% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Foresight Group Holdings is not retaining those earnings to reinvest in growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Foresight Group Holdings' payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 6 Foresight Group Holdings analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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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.