Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kindred Group plc (STO:KIND SDB) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Kindred Group's shares on or after the 16th of May, you won't be eligible to receive the dividend, when it is paid on the 20th of May.
The company's upcoming dividend is UK£0.17 a share, following on from the last 12 months, when the company distributed a total of UK£0.34 per share to shareholders. Based on the last year's worth of payments, Kindred Group stock has a trailing yield of around 4.3% on the current share price of SEK95.68. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Kindred Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Kindred Group's payout ratio is modest, at just 33% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Kindred Group's earnings have been skyrocketing, up 23% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Kindred Group has lifted its dividend by approximately 17% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is Kindred Group an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, Kindred Group paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Kindred Group has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for Kindred Group (1 makes us a bit uncomfortable) you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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.