Kainos Group (LON:KNOS) Has Announced A Dividend Of £0.151

Kainos Group plc's (LON:KNOS) investors are due to receive a payment of £0.151 per share on 28th of October. This means the annual payment will be 1.9% of the current stock price, which is lower than the industry average.

View our latest analysis for Kainos Group

Kainos Group's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before this announcement, Kainos Group was paying out 76% of earnings, but a comparatively small 70% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 39.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Kainos Group's Dividend Has Lacked Consistency

Looking back, Kainos Group's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from £0.036 total annually to £0.222. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Kainos Group's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Kainos Group has grown earnings per share at 27% 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 Kainos Group is not retaining those earnings to reinvest in growth.

Our Thoughts On Kainos Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kainos Group's payments, as there could be some issues with sustaining them into the future. 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. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Kainos Group that investors need to be conscious of moving forward. 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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