Sabre Insurance Group plc (LON:SBRE) has announced it will be reducing its dividend payable on the 1st of June to UK£0.093. The dividend yield of 5.7% is still a nice boost to shareholder returns, despite the cut.
See our latest analysis for Sabre Insurance Group
Sabre Insurance Group's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 97% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 12.6%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.
Sabre Insurance Group's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from UK£0.14 in 2018 to the most recent annual payment of UK£0.13. Doing the maths, this is a decline of about 2.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Sabre Insurance Group's EPS has declined at around 6.6% a year. 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
The Dividend Could Prove To Be Unreliable
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Sabre Insurance Group that investors should take into consideration. Is Sabre Insurance Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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