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London Stock Exchange Group plc (LON:LSEG) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of May to £0.753. Even though the dividend went up, the yield is still quite low at only 1.4%.
See our latest analysis for London Stock Exchange Group
London Stock Exchange Group's Earnings Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. The last payment made up 75% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
The next year is set to see EPS grow by 159.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 33% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.283, compared to the most recent full-year payment of £1.07. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. London Stock Exchange Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
London Stock Exchange Group May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, London Stock Exchange Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
Our Thoughts On London Stock Exchange Group's Dividend
In summary, while it's always good to see the dividend being raised, we don't think London Stock Exchange Group's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 16 analysts we track are forecasting for the future. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.