Kainos Group plc (LON:KNOS) stock is about to trade ex-dividend in four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Kainos Group's shares on or after the 23rd of November will not receive the dividend, which will be paid on the 15th of December.

The company's next dividend payment will be UK£0.082 per share, on the back of last year when the company paid a total of UK£0.24 to shareholders. Looking at the last 12 months of distributions, Kainos Group has a trailing yield of approximately 2.4% on its current stock price of £10.07. If you buy this business for its dividend, you should have an idea of whether Kainos Group's dividend is reliable and sustainable. So we need to investigate whether Kainos Group can afford its dividend, and if the dividend could grow.

See our latest analysis for Kainos Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Kainos Group paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Kainos Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 45% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends. historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Kainos Group has grown its earnings rapidly, up 27% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.



Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kainos Group has delivered an average of 27% per year annual increase in its dividend, based on the past eight years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Kainos Group for the upcoming dividend? We like Kainos Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Kainos Group has an appealing dividend, it's worth knowing the risks involved with this stock. For example - Kainos Group has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.