Sage (LSE:SGE) might not be the first name you think of if you’re searching for dividend shares. Technology stocks typically reinvest most if not all their excess cash for growth. Distributing it to shareholders often is further down their list of priorities.
Not so with Sage. In fact, it’s one of the FTSE 100‘s greatest dividend growth shares. It’s grown annual payouts for 35 straight years, with annual dividends over the last decade increasing at an average rate of 4.9%.
| Year | Dividend per share |
|---|---|
| 2025 | 21.85p |
| 2024 | 20.45p |
| 2023 | 19.3p |
| 2022 | 18.4p |
| 2021 | 17.68p |
| 2020 | 17.25p |
| 2019 | 16.91p |
| 2018 | 16.5p |
| 2017 | 15.42p |
| 2016 | 14.15p |
The question is, what’s made Sage such a dividend powerhouse? And can it keep delivering steady dividend growth?
Cash machine
All quality dividend growth stocks have strong records of cash generation. Their free cash flow is used to pay dividends today, and to reinvest in the business to fund long-term payouts.
In the case of Sage, cash generation is especially strong. Unlike companies that need to build factories or require large product inventories, its operations are capital-light — once it develops a software product, it can sell extra subscriptions at little additional cost.
Sage’s strong cash flows also reflect its Software as a Service (SaaS), subscription-based model, which provide reliable recurring revenues. On top of this, by focusing on essential accounting, payroll and HR software, cash generation is given added durability across the economic cycle.
It’s also important to remember the FTSE firm’s leading position in a fast-growing market. As companies rapidly digitalise their operations, revenues and cash flows are increasing, pushing dividends higher.
Finally, Sage maintains a low payout ratio of roughly 50%. The result? Dividend growth is more sustainable over time.
What’s the catch?
Like any share, Sage is still exposed to potential dividend shocks. So what are the dangers here?
Arguably the biggest threat to dividends might be the growth of AI and its disruptive effect on SaaS providers. As AI agents become more sophisticated, it’s conceivable that businesses looking to trim costs might migrate away from Sage’s services.
City analysts aren’t expecting this to impact dividends here over the medium term, though. They’re tipping last year’s 21.85p per share reward to rise to:
- 23.33p in 2026
- 24.88p next year
- 26.99p in 2028
Following Sage’s recent share price drop, this leaves dividend yields of 2.8%-3.2% for the period. Those are miles above the 10-year average of 2.1%.
Sage looks in good shape to meet broker forecasts, too, with dividend cover ranging from 1.9 times–2.3 times up to 2028.
Are Sage shares a potential buy?
AI risks merit attention and can’t be ignored. But overall, I don’t believe firms will shift their mission-critical processes away from Sage at anything like the scale some suspect. So profits and dividends could keep rising strongly
Following recent share price weakness, the shares today trade on a forward price-to-earnings (P/E) ratio of 18.9 times. That’s well below the 10-year average of 31–32. For value investors seeking top dividend shares, I think it’s tough to ignore.
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Royston Wild owns shares in Sage.
