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Jupiter Fund Management Plc (LON:JUP) has announced it will be reducing its dividend payable on the 1st of September to £0.064, which is 19% lower than what investors received last year for the same period. The yield is still above the industry average at 7.3%.
See our latest analysis for Jupiter Fund Management
Jupiter Fund Management'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. However, Jupiter Fund Management's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to expand by 9.6%. If the dividend continues on this path, the payout ratio could be 58% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the annual payment back then was £0.088, compared to the most recent full-year payment of £0.084. The dividend has shrunk at a rate of less than 1% a year over this period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Jupiter Fund Management's EPS has declined at around 21% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Jupiter Fund Management that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.