Why It Might Not Make Sense To Buy Kindred Group plc (STO:KIND SDB) For Its Upcoming Dividend
Kindred Group plc (STO:KIND SDB) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 15th of November to receive the dividend, which will be paid on the 21st of November.
Kindred Group's next dividend payment will be kr0.2 per share, and in the last 12 months, the company paid a total of kr0.5 per share. Looking at the last 12 months of distributions, Kindred Group has a trailing yield of approximately 9.6% on its current stock price of SEK63.88. If you buy this business for its dividend, you should have an idea of whether Kindred Group's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Kindred Group
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Kindred Group distributed an unsustainably high 132% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Kindred Group generated enough free cash flow to afford its dividend. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Kindred Group fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Kindred Group's earnings per share have been growing at 16% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Kindred Group has increased its dividend at approximately 33% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Should investors buy Kindred Group for the upcoming dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. All things considered, we are not particularly enthused about Kindred Group from a dividend perspective.
Curious what other investors think of Kindred Group? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.