Resources Connection's (NASDAQ:RGP) Dividend Will Be $0.14

The board of Resources Connection, Inc. (NASDAQ:RGP) has announced that it will pay a dividend of $0.14 per share on the 14th of March. This makes the dividend yield 6.6%, which will augment investor returns quite nicely.

Check out our latest analysis for Resources Connection

Resources Connection's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Resources Connection's Could Struggle to Maintain Dividend Payments In The Future

Resources Connection's Future Dividends May Potentially Be At Risk

A big dividend yield for a few years doesn't mean much if it can't be sustained. Resources Connection is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.

Over the next year, EPS is forecast to expand by 121.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 148%, which is a bit high and could start applying pressure to the balance sheet.

Resources Connection Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.28 in 2015, and the most recent fiscal year payment was $0.56. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. 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 Resources Connection's earnings per share has fallen at approximately 9.9% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Resources Connection's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

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. As an example, we've identified 1 warning sign for Resources Connection that you should be aware of before investing. 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.