KAL Group (JSE:KAL) Is Increasing Its Dividend To ZAR1.30

KAL Group Limited (JSE:KAL) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of February to ZAR1.30. This takes the dividend yield to 4.6%, which shareholders will be pleased with.

View our latest analysis for KAL Group

KAL Group's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, KAL Group was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 11.7% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.

KAL Group's Dividend Has Lacked Consistency

KAL Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2017, the annual payment back then was ZAR0.826, compared to the most recent full-year payment of ZAR1.80. This means that it has been growing its distributions at 14% per annum over that time. KAL Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that KAL Group has grown earnings per share at 12% per year over the past five years. KAL Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like KAL Group's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for KAL Group that investors should take into consideration. Is KAL Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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