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Admiral Group plc (LON:ADM) will increase its dividend from last year's comparable payment on the 13th of June to £1.21. This will take the dividend yield to an attractive 6.4%, providing a nice boost to shareholder returns.
View our latest analysis for Admiral Group
Admiral Group's Future Dividend Projections Appear Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last dividend, Admiral Group is earning enough to cover the payment, but then it makes up 257% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Earnings per share is forecast to rise by 17.8% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 79% which is a bit high but can definitely be sustainable.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £1.00 in 2015, and the most recent fiscal year payment was £1.92. This works out to be a compound annual growth rate (CAGR) of approximately 6.7% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Admiral Group Could Grow Its Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Admiral Group has seen EPS rising for the last five years, at 8.9% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Admiral Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Admiral Group is earning enough to cover the payments, the cash flows are lacking. We don't think Admiral Group is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Admiral Group you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.