The Board of Kelly Services, Inc. (NASDAQ:KELY.A) announced that it will declare a dividend on September 4. Investors will receive $0.075 per share. This payment means the dividend yield is 1.5%, which is about the industry average.

Check out our latest analysis for Kelly Services

Kelly Services’ profits easily cover the distributions

We want the dividend to remain consistent over the long term, so it’s important to check whether it’s sustainable. Before this announcement, Kelly Services easily earned enough to cover the dividend, so a large portion of the earnings were reinvested in the business.

Next year, earnings per share are expected to grow by 53.3%. If the dividend stays on this trajectory, the payout ratio could be 15% next year, which we believe can be quite sustainable going forward.

Dividend volatility

The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has increased from an annual total of $0.20 in 2014 to the most recent annual total payout of $0.30. This means that the company has increased its payouts by about 4.1% annually during this period. The dividend has experienced some fluctuations in the past, so while the dividend was increased this year, we should keep in mind that it has been cut in the past.

Dividend growth potential is shaky

With a relatively unstable dividend, it’s even more important to see if earnings per share are growing. Kelly Services’ earnings per share have fallen by about 15% annually over the past five years. A sharp decline in earnings per share is not good from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It’s not all bad news, though, with earnings forecast to rise over the next 12 months – we’d just be a little cautious until this becomes a long-term trend.

In summary

To sum up, while it’s good that the dividend hasn’t been cut, we’re a little cautious about Kelly Services’ payments as it could have problems maintaining them in the future. In the past, payments have been unstable, but in the short term, the dividend could be reliable as the company generates enough cash to cover it. We’d probably look elsewhere for an income investment.

Companies with a stable dividend policy are likely to attract more interest from investors than those with a more inconsistent approach. Despite the importance of dividend payments, however, they are not the only factors our readers should know when evaluating a company. For example, we have selected the following companies: 2 warning signs for Kelly Services investors should know before investing capital in this stock. If you are a dividend investor, you may also want to take a look at our curated list of high dividend stocks.

Do you have feedback on this article? Are you concerned about the content? Contact us directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.