Kainos Group (LON:KNOS) Has Re-Affirmed Its Dividend Of UK£0.15

Kainos Group plc's (LON:KNOS) investors are due to receive a payment of UK£0.15 per share on 28th of October. This means the annual payment will be 1.8% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Kainos Group

Kainos Group's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Kainos Group's dividend made up quite a large proportion of earnings but only 70% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 16.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 36% which brings it into quite a comfortable range.

Kainos Group's Dividend Has Lacked Consistency

Kainos Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the dividend has gone from UK£0.036 to UK£0.22. This means that it has been growing its distributions at 30% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Kainos Group has seen EPS rising for the last five years, at 27% per annum. 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

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Kainos Group that investors should take into consideration. 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.