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The board of TP ICAP Group PLC (LON:TCAP) has announced that it will be increasing its dividend by 6.7% on the 3rd of November to £0.048, up from last year's comparable payment of £0.045. This takes the dividend yield to 7.4%, which shareholders will be pleased with.
Check out our latest analysis for TP ICAP Group
TP ICAP Group's Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, TP ICAP Group's dividend made up quite a large proportion of earnings but only 21% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
Over the next year, EPS is forecast to expand by 85.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 44% which brings it into quite a comfortable range.
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 £0.124. This implies that the company grew its distributions at a yearly rate of about 1.7% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Dividend Growth Could Be Constrained
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. TP ICAP Group has impressed us by growing EPS at 12% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On TP ICAP Group's Dividend
Overall, we always like to see the dividend being raised, but we don't think TP ICAP Group will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.