PSG Financial Services' (JSE:KST) Dividend Will Be Increased To ZAR0.135

The board of PSG Financial Services Limited (JSE:KST) has announced that it will be increasing its dividend by 23% on the 6th of November to ZAR0.135, up from last year's comparable payment of ZAR0.11. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.

Check out our latest analysis for PSG Financial Services

PSG Financial Services' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. The last dividend was quite comfortably covered by PSG Financial Services' earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 93% indicates it is more focused on returning cash to shareholders than growing 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 48% by next year, which we think can be pretty sustainable going forward.

PSG Financial Services Is Still Building Its Track Record

PSG Financial Services' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of ZAR0.08 in 2014 to the most recent total annual payment of ZAR0.36. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that PSG Financial Services has grown earnings per share at 12% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Are management backing themselves to deliver performance? Check their shareholdings in PSG Financial Services in our latest insider ownership analysis. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.