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The board of International Personal Finance plc (LON:IPF) has announced that it will pay a dividend of £0.034 per share on the 27th of September. This takes the annual payment to 6.7% of the current stock price, which is about average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that International Personal Finance's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for International Personal Finance
International Personal Finance's Payment Has Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, International Personal Finance's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 32.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was £0.093, compared to the most recent full-year payment of £0.103. This works out to be a compound annual growth rate (CAGR) of approximately 1.0% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Dividend Growth May Be Hard To Come By
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. In the last five years, International Personal Finance's earnings per share has shrunk at approximately 7.5% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
Overall, we always like to see the dividend being raised, but we don't think International Personal Finance will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think International Personal Finance is a great stock to add to your portfolio if income is your focus.