Sage Group's (LON:SGE) Upcoming Dividend Will Be Larger Than Last Year's

The Sage Group plc (LON:SGE) has announced that it will be increasing its periodic dividend on the 9th of February to £0.1275, which will be 5.4% higher than last year's comparable payment amount of £0.121. Based on this payment, the dividend yield for the company will be 1.7%, which is fairly typical for the industry.

Check out our latest analysis for Sage Group

Sage Group's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Sage Group was paying out 93% of earnings, but a comparatively small 53% of free cash flows. 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.

Over the next year, EPS is forecast to expand by 112.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Sage Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was £0.107 in 2013, and the most recent fiscal year payment was £0.193. This implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. In the last five years, Sage Group's earnings per share has shrunk at approximately 5.4% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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

In summary, while it's always good to see the dividend being raised, we don't think Sage Group's payments are rock solid. 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 probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Sage Group that investors should know about before committing capital to this stock. 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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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.