Resources Connection (NASDAQ:RGP) Is Due To Pay A Dividend Of US$0.14

Resources Connection, Inc. (NASDAQ:RGP) will pay a dividend of US$0.14 on the 10th of June. This means the annual payment is 3.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Resources Connection

Resources Connection's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 299% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 31%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next 12 months could see EPS growing very rapidly. Assuming the dividend continues along the path it has been on, the payout ratio could get to 77% which is certainly still sustainable.

Resources Connection Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was US$0.16, compared to the most recent full-year payment of US$0.56. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 25% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Resources Connection's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Resources Connection's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 4 warning signs for Resources Connection that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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