The Goldman Sachs Group, Inc. (NYSE:GS) has announced that it will be increasing its dividend from last year's comparable payment on the 29th of September to $4.00. This makes the dividend yield about the same as the industry average at 2.2%.
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Goldman Sachs Group's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 17.8%. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.
The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $2.40 total annually to $16.00. This means that it has been growing its distributions at 21% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven’t experienced any notable falls during this period.
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It’s encouraging to see that Goldman Sachs Group has been growing its earnings per share at 31% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Overall, we always like to see the dividend being raised, but we don’t think Goldman Sachs Group will make a great income stock. While Goldman Sachs Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for Goldman Sachs Group that you should be aware of before investing.
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.