Kainos Group (LON:KNOS) Is Paying Out A Larger Dividend Than Last Year

Kainos Group plc (LON:KNOS) will increase its dividend from last year's comparable payment on the 20th of October to £0.161. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.

See 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 50% 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.

Over the next year, EPS is forecast to expand by 45.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.

Kainos Group's Dividend Has Lacked Consistency

It's comforting to see that Kainos Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of £0.036 in 2015 to the most recent total annual payment of £0.239. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year 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.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Kainos Group has impressed us by growing EPS at 27% per year over the past five years. However, Kainos Group isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Kainos Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Kainos Group is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 8 analysts we track are forecasting for Kainos Group for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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