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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 means the annual payment is 6.2% of the current stock price, which is above the average for the industry.
View our latest analysis for TP ICAP Group
TP ICAP Group's Future Dividend Projections Appear Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. 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 67%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Looking forward, earnings per share is forecast to rise by 99.5% 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
TP ICAP Group has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 7 years was £0.112 in 2017, and the most recent fiscal year payment was £0.148. This implies that the company grew its distributions at a yearly rate of about 4.1% 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 May Be Hard To Achieve
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. TP ICAP Group has seen earnings per share falling at 2.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. 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, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. We don't think TP ICAP Group is a great stock to add to your portfolio if income is your focus.