KAL Group Limited (JSE:KAL) has announced that it will pay a dividend of ZAR1.26 per share on the 17th of February. The dividend yield of 3.5% is still a nice boost to shareholder returns, despite the cut.
Check out our latest analysis for KAL Group
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Before making this announcement, KAL Group was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 7.2% 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 33% by next year, which we think can be pretty sustainable going forward.
Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the dividend has gone from ZAR0.826 total annually to ZAR1.80. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It’s encouraging to see that KAL Group has been growing its earnings per share at 7.2% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for KAL Group’s prospects of growing its dividend payments in the future.
Overall, while it’s not great to see that the dividend has been cut, we think the company is now in a good position to make consistent payments going into the future. While the payout ratios are a good sign, we are less enthusiastic about the company’s dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we’ve picked out 2 warning signs for KAL Group that investors should know about before committing capital to this stock. 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.
