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Intermediate Capital Group plc (LON:ICG) will increase its dividend from last year's comparable payment on the 1st of August to £0.567. This will take the annual payment to 4.2% of the stock price, which is above what most companies in the industry pay.
Intermediate Capital Group's Payment Could Potentially Have Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Intermediate Capital Group is earning enough to cover the payment, but then it makes up 184% 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.
The next year is set to see EPS grow by 16.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for Intermediate Capital Group
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from £0.276 total annually to £0.83. This means that it has been growing its distributions at 12% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Intermediate Capital Group has grown earnings per share at 33% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Intermediate Capital Group could prove to be a strong dividend payer.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Intermediate Capital Group is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Intermediate Capital Group that investors need to be conscious of moving forward. Is Intermediate Capital Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.