Kainos Group (LON:KNOS) Will Pay A Dividend Of £0.151

The board of Kainos Group plc (LON:KNOS) has announced that it will pay a dividend on the 28th of October, with investors receiving £0.151 per share. The dividend yield is 1.6% based on this payment, which is a little bit low compared to the other companies in the industry.

See our latest analysis for Kainos Group

Kainos Group's Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. The last payment made up 76% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

The next year is set to see EPS grow by 39.5%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 33% which brings it into quite a comfortable range.

Kainos Group's Dividend Has Lacked Consistency

Looking back, Kainos Group's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from £0.036 total annually to £0.222. This works out to be a compound annual growth rate (CAGR) of approximately 30% a year over that time. Kainos 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.

Kainos Group Might Find It Hard To Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends 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. 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.

In Summary

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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 7 Kainos Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Is Kainos Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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