Servcorp (ASX:SRV) Is Increasing Its Dividend To A$0.14

Yahoo

21-02-2025

Servcorp Limited's (ASX:SRV) dividend will be increasing from last year's payment of the same period to A$0.14 on 2nd of April. This will take the dividend yield to an attractive 4.3%, providing a nice boost to shareholder returns.
See our latest analysis for Servcorp
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by Servcorp's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Over the next year, EPS is forecast to expand by 22.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 40% by next year, which is in a pretty sustainable range.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was A$0.22, compared to the most recent full-year payment of A$0.236. Its dividends have grown at less than 1% per annum over this time frame. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Servcorp has seen EPS rising for the last five years, at 9.9% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.
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. For example, we've picked out 1 warning sign for Servcorp that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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