Here’s the dividend forecast for Sage Group shares through to 2026!

The dividend on Sage shares has risen for 12 straight years. Can the FTSE 100 company keep its proud record going? Royston Wild takes a look.

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I’m not a betting man. But I bet Sage Group (LSE:SGE) wouldn’t the first name on someone’s lips if I was to ask them to name great dividend shares.

This isn’t a poor reflection on Sage. Rather, it’s because growth-chasing stocks aren’t renowned for also being generous dividend payers. Any spare cash such companies have tends to be reinvested to generate more profit.

However, Sage — which develops accounting, payroll, and human resources software — is an exception to this rule. It’s committed to reliably raising shareholder payouts while still investing shedloads of capital into its operations.

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Indeed, dividends here have risen every year since 2012.

Sage's dividend history
Source: Dividendmax

But what does the future hold for the FTSE 100 firm’s dividend policy? And should investors consider Sage shares for their portfolio?

Healthy forecasts

Keen followers of the stock may be unsurprised Sage’s dividends are tipped by City brokers to keep rising for the next two years, at least:

YearDividend per shareDividend growthDividend yield
September 202521.85p7%1.7%
September 202623.32p7%1.8%

These forecasts are supported by expected earnings growth of 10% and 13% in fiscal 2025 and 2026 respectively. However, dividends are never, ever guaranteed. So how realistic are these estimates?

The first, and simplest thing, to consider is dividend cover. This gauges how well predicted payouts are covered by expected earnings.

I’m ideally looking for a reading of 2 times or above to provide a margin of safety. And on this front Sage shares score well, with dividend cover between 1.9 times and 2 times for the next two years.

On top of this, Sage has a rock-solid balance sheet it can use to support future payouts. The success of its subscription-based model means excellent cash generation, and free cash flow rose 30% last financial year to £524m.

The firm also has very little debt on its balance sheet it needs to worry about. A net-debt-to-EBITDA ratio of 1.2 times as of September was well inside its target range of 1 to 2 times.

Sage’s plans to repurchase another £400m worth of its shares, as announced in last week’s full-year results, underlines its robust financial foundations.

Are Sage shares worth a closer look?

All things considered, Sage looks in great shape to meet dividend forecasts for its shares. But as with any share, I need to think about more than just cash rewards when contemplating whether to invest.

I also need to ponder the possibility that the share price could stagnate or even fall. In this case, a sharp economic slowdown that cools business software demand could hit profits and cause a price reversal.

Having said that, Sage’s resilience encourages me to think this is a top stock to consider. Its focus on cloud and artificial intelligence (AI) systems is paying off handsomely, driving underlying revenues and operating profit 9% and 21% higher respectively in the last financial year.

Created with Highcharts 11.4.3Sage Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

There’s scope for a lot more growth too, as companies continue to digitalise their operations, and Sage develops new products to take advantage of this.

Its shares are up 16% in the last year, and I expect the firm to keep rising despite its forward price-to-earnings (P/E) ratio of 31 times.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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