IGM Financial (TSE:IGM) Will Pay A Dividend Of CA$0.5625
The board of IGM Financial Inc. (TSE:IGM) has announced that it will pay a dividend of CA$0.5625 per share on the 30th of April. This makes the dividend yield 6.5%, which will augment investor returns quite nicely.
See our latest analysis for IGM Financial
IGM Financial's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, IGM Financial was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.
Looking forward, earnings per share is forecast to fall by 14.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 68%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
IGM Financial Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was CA$2.15, compared to the most recent full-year payment of CA$2.25. Dividend payments have been growing, but very slowly over the period. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 4.1% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about IGM Financial's payments, as there could be some issues with sustaining them into the future. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for IGM Financial that you should be aware of before investing. Is IGM Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
