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IPD Group Limited's (ASX:IPG) periodic dividend will be increasing on the 4th of October to A$0.062, with investors receiving 32% more than last year's A$0.047. This takes the dividend yield to 1.9%, which shareholders will be pleased with.
See our latest analysis for IPD Group
IPD Group's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, IPD Group's dividend was only 46% of earnings, however it was paying out 148% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 71.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.
IPD Group Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of A$0.037 in 2022 to the most recent total annual payment of A$0.094. This works out to be a compound annual growth rate (CAGR) of approximately 59% a year over that time. IPD Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. IPD Group has impressed us by growing EPS at 18% per year over the past three years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
An additional note is that the company has been raising capital by issuing stock equal to 19% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think IPD Group's payments are rock solid. While IPD Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.