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RIT Capital Partners plc (LON:RCP) will increase its dividend from last year's comparable payment on the 28th of April to £0.19. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.
See our latest analysis for RIT Capital Partners
RIT Capital Partners Might Find It Hard To Continue The Dividend
If it is predictable over a long period, even low dividend yields can be attractive. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.
If the trend of the last few years continues, EPS will grow by 1.2% over the next 12 months. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this happens fairly soon, the dividend could start to come under pressure.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.28 in 2013, and the most recent fiscal year payment was £0.38. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. 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.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that RIT Capital Partners' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. RIT Capital Partners isn't actually turning a profit, which makes it much harder for us to see how they can grow dividends.
RIT Capital Partners' Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. 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 RIT Capital Partners that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.