Intermediate Capital Group plc's (LON:ICG) dividend will be increasing from last year's payment of the same period to £0.567 on 1st of August. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.

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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.

Looking forward, earnings per share is forecast to rise by 20.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be , which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Intermediate Capital Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.28 in 2015 to the most recent total annual payment of £0.83. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Intermediate Capital Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Intermediate Capital Group's earnings per share has shrunk at 100% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Intermediate Capital Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Intermediate Capital Group's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.