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The board of TP ICAP Group PLC (LON:TCAP) has announced that it will pay a dividend of £0.048 per share on the 8th of November. This makes the dividend yield 6.1%, which will augment investor returns quite nicely.
View our latest analysis for TP ICAP Group
TP ICAP Group's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 115% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 68%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, earnings per share is forecast to rise by 100.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 52%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
TP ICAP Group's Dividend Has Lacked Consistency
It's comforting to see that TP ICAP Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the annual payment back then was £0.112, compared to the most recent full-year payment of £0.148. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. 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.
TP ICAP Group May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. TP ICAP Group has seen earnings per share falling at 2.9% per year over the last five years. 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.
TP ICAP Group's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.