Morgan Sindall is increasing its dividend

Morgan Sindall Group plc’s dividend announcement and its sustainability are based on various financial indicators.

The key points are as follows:

1. Dividend Increase: Morgan Sindall Group plc plans to increase its dividend from the previous year’s comparable payment to £0.36. This move results in a dividend yield of 5.5%, which is higher than the industry average.
2. Earnings Coverage: While a high dividend yield is appealing, it’s essential to assess whether the dividend payment is sustainable. Prior to the dividend announcement, the company was paying out 75% of its earnings and over 75% of its free cash flows. These figures might suggest that the company’s primary focus is on distributing cash to shareholders rather than reinvesting it for future growth.
3. Earnings Growth: The company’s earnings per share (EPS) is projected to increase by 71.7% over the next year. If the dividend continues to follow recent trends, the estimated payout ratio would be around 50%. A payout ratio in this range is generally seen as more sustainable for dividends.

In summary, the dividend increase by Morgan Sindall Group plc is noteworthy, but it’s important to consider the sustainability of the dividend in the long term. The company’s historical payout ratios and the projected growth in earnings are both indicators that can help assess the viability of the dividend payment. If the dividend payout ratio moves into a more sustainable range, it could alleviate concerns about the company’s focus on shareholder returns at the expense of growth investments.