Sage Group (LON:SGE) Is Paying Out A Larger Dividend Than Last Year

The Sage Group plc (LON:SGE) will increase its dividend on the 9th of February to £0.1275, which is 5.4% higher than last year's payment from the same period of £0.121. Based on this payment, the dividend yield for the company will be 1.6%, which is fairly typical for the industry.

Check out our latest analysis for Sage Group

Sage Group's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Sage Group's dividend made up quite a large proportion of earnings but only 53% 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.

The next year is set to see EPS grow by 110.6%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 47% which would be quite comfortable going to take the dividend forward.

Sage Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.109 in 2013, and the most recent fiscal year payment was £0.193. This means that it has been growing its distributions at 5.9% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Sage Group's earnings per share has fallen at approximately 5.3% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Sage Group will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. 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. Taking the debate a bit further, we've identified 2 warning signs for Sage Group that investors need to be conscious of moving forward. Is Sage Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.