U.S. Markets closed

Here's Why We're Wary Of Buying IG Group Holdings plc's (LON:IGG) For Its Upcoming Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see IG Group Holdings plc (LON:IGG) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 26th of September, you won't be eligible to receive this dividend, when it is paid on the 24th of October.

IG Group Holdings's next dividend payment will be UK£0.3 per share, and in the last 12 months, the company paid a total of UK£0.4 per share. Last year's total dividend payments show that IG Group Holdings has a trailing yield of 6.7% on the current share price of £6.426. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether IG Group Holdings has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for IG Group Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. IG Group Holdings paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

LSE:IGG Historical Dividend Yield, September 21st 2019

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that IG Group Holdings's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, IG Group Holdings has lifted its dividend by approximately 13% a year on average.

The Bottom Line

Has IG Group Holdings got what it takes to maintain its dividend payments? IG Group Holdings's earnings have barely moved in recent times, and the company is paying out a disagreeably high percentage of its earnings; a mediocre combination. IG Group Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Curious what other investors think of IG Group Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.