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

ScS Group plc's (LON:SCS) dividend will be increasing from last year's payment of the same period to £0.09 on 9th of December. This takes the dividend yield to 9.7%, which shareholders will be pleased with.

Check out the opportunities and risks within the GB Specialty Retail industry.

ScS Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, ScS Group's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to fall by 33.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 49%, which we are pretty comfortable with and we think is feasible on an earnings basis.

ScS Group's Dividend Has Lacked Consistency

It's comforting to see that ScS Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the annual payment back then was £0.056, compared to the most recent full-year payment of £0.135. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. ScS Group 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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. ScS Group has seen EPS rising for the last five years, at 10% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

ScS 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.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs for ScS Group you should be aware of, and 1 of them doesn't sit too well with us. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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