PSG Financial Services Limited’s (JSE:KST) dividend will be increasing from last year’s payment of the same period to ZAR0.285 on 13th of May. Even though the dividend went up, the yield is still quite low at only 2.6%.
See our latest analysis for PSG Financial Services
PSG Financial Services’ Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. 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 94% indicates it is more focused on returning cash to shareholders than growing the business.
Over the next year, EPS could expand by 12.4% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which is in the range that makes us comfortable with the sustainability of the dividend.
PSG Financial Services Has A Solid Track Record
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. Since 2014, the dividend has gone from ZAR0.08 total annually to ZAR0.385. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year 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
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. PSG Financial Services has seen EPS rising for the last five years, at 12% per annum. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
In Summary
In summary, it’s great to see that the company can raise the dividend and keep it in a sustainable range. However, lack of cash flows makes us wary of the potential for cuts in the dividend’s future, even though the dividend is generally looking okay. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Are management backing themselves to deliver performance? Check their shareholdings in PSG Financial Services in our latest insider ownership analysis. 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.
