The Goldman Sachs Group, Inc. (NYSE:GS) will increase its dividend on the 29th of September to US$2.00. Despite this raise, the dividend yield of 1.5% is only a modest boost to shareholder returns.
Goldman Sachs Group's Earnings Easily Cover the Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Goldman Sachs Group's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 18.6% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 14%, which is comfortable for the company to continue in the future.
Goldman Sachs Group Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the dividend has gone from US$1.40 to US$8.00. This means that it has been growing its distributions at 19% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Goldman Sachs Group has been growing its earnings per share at 39% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like Goldman Sachs Group's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Goldman Sachs Group you should be aware of, and 2 of them are potentially serious. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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