This sensible FTSE 100 dividend progress share fell 14% in August. One to think about in September?

I’ve been tempted to purchase this FTSE 100 for years however one factor stopped me. It was too costly. Too fashionable. Simply too darn good.

The corporate in query is Sage Group (LSE: SGE), which develops accounting and payroll software program for companies worldwide. All of the share value appeared to do was climb greater and it regarded costly with a price-to-earnings (P/E) ratio of round 34. I assumed it was one to purchase on a dip, and now we now have one.

Sage Group has slumped

After I checked the listing of greatest and worst performing FTSE 100 shares in August, I used to be shocked to see Sage on the backside. The shares fell 13.7% within the month, reducing annual progress to six.7%. They’re nonetheless up nearly 50% over 5 years, with dividends on prime, so long-term buyers gained’t be too frightened. What explains this sudden droop?

On 30 July, it reported that Q3 complete income rose 9% to £1.86bn, which appeared tremendous, whereas administration saved full-year steering unchanged. This wasn’t an organization in disaster. Actually, it appears in tremendous fettle, with recurring revenues and subscription earnings each marching upwards, giving the board a lot higher earnings visibility.

So, why the destructive market response? Maybe buyers anticipated extra. With sky-high valuations like this one, even a good set of outcomes can fall wanting expectations. The shares fell within the fast aftermath, with no subsequent information to elevate them up.

Excessive value to earnings

The inventory has lengthy been priced for perfection, and when that occurs, the smallest wobble can spark a correction. Even after August’s droop, the P/E sits at 28.7. That’s nonetheless far above the broader market common, though Sage has lengthy commanded a premium.

I’ve regularly eased my strict desire for lowly-rated firms. All too usually, they’re low cost for a cause. Paying extra for high quality can work out properly, offered the basics maintain up. Nonetheless, expectations stay excessive, so Sage has to ship in any other case investor disappointment might develop.

Sage additionally carries particular dangers. Synthetic intelligence might permit clients to copy companies in-house, denting its edge. Competitors from rivals in cloud-based software program is one other.

Dividends maintain flowing

At first look, the 1.88% traidling yield doesn’t look a lot. But Sage has lifted its dividend yearly since 1988. During the last 15 years, payouts have compounded at simply over 7% a yr, comfortably forward of inflation.

The explanation the yield appears low is just because the share value has run so strongly in recent times. Earnings buyers shouldn’t dismiss it on that foundation, because it nonetheless combines dependable dividends with regular long-term progress.

Dealer forecasts underline the potential. The consensus one-year goal is 1,375p, which is 27% above right this moment’s 1,089p. Which might be a surprising return if it occurred. As ever, it’s not assured, and I think lots of these forecasts could have been made earlier than the current droop.

My view

To me, this appears just like the market taking a extra reasonable view after years of relentless optimism. For long-term buyers constructing a Shares and Shares ISA, Sage is value contemplating on right this moment’s weak spot. It stays a high quality blue-chip with reliable earnings, sturdy recurring revenues, and a confirmed mannequin. Having waited so lengthy for a dip, I’m now thought of critically contemplating making the most of it.