Kelsian Group Limited Declares Dividend Amid Concerns Over Sustainability

Highlights:

• Dividend Yield: Kelsian Group Limited announced a dividend of AU$0.095 per share, offering a 4.6% yield, payable on October 21st.
• Sustainability Concerns: High payout ratios and inconsistent cash flow raise doubts about the long-term sustainability of the company's dividends.
• Growth Potential: While EPS is forecasted to grow by 55.5% next year, historical volatility and stagnant earnings could limit future dividend growth.

Kelsian Group Limited (ASX: KLS) has announced a dividend of AU$0.095 per share, set to be paid on the 21st of October. With this payment, the dividend yield on the company's stock reaches 4.6%, offering shareholders a potentially attractive return. However, underlying financial metrics raise concerns about the long-term sustainability of these payments.

Earnings Coverage: A Potential Red Flag

While the dividend yield is appealing, it's crucial to consider whether Kelsian Group's earnings can sustain these payments. Historically, the company's dividend has consumed a significant portion of its earnings. Moreover, the lack of substantial cash flow to support these payouts further complicates the sustainability picture. Although a high dividend yield may seem promising, it becomes less so if the company cannot maintain it over the long term.

Forecasted Growth: A Silver Lining?

Looking ahead, Kelsian Group's earnings per share (EPS) are forecast to grow by 55.5% over the next year. If this growth materializes, the company's payout ratio could settle at a more comfortable 56%, suggesting some stability in future dividends. However, this is contingent on the company's ability to meet its growth targets, which remains uncertain.

Dividend History: Volatility and Uncertainty

Kelsian Group's dividend history reveals some volatility. Since 2014, the company has grown its annual dividend from AU$0.0732 to AU$0.175, translating to a 9.1% annual growth rate. Despite this growth, there has been at least one significant dividend cut in the past decade, raising questions about the reliability of the income stream for investors.

Limited Potential for Future Dividend Growth

The company's earnings growth has been stagnant over the past five years, which could limit its ability to increase dividends in the future. With most of its profits being distributed as dividends and little room for growth, Kelsian Group may struggle to provide the robust dividend growth that income-focused investors seek.

Conclusion: Caution Advised

While Kelsian Group's current dividend yield is attractive, potential investors should approach with caution. The company's dividend history is marred by volatility, and the high payout ratio may not be sustainable in the long run. For those prioritizing reliable income, Kelsian Group may not be the best choice, as the risks associated with its dividend payments are significant.

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