Readers hoping to buy Admiral Group plc (LON:ADM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 7th of May in order to receive the dividend, which the company will pay on the 1st of June.
Admiral Group's next dividend payment will be UK£0.56 per share, and in the last 12 months, the company paid a total of UK£1.19 per share. Last year's total dividend payments show that Admiral Group has a trailing yield of 5.2% on the current share price of £23.14. If you buy this business for its dividend, you should have an idea of whether Admiral Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Admiral Group is paying out an acceptable 66% of its profit, a common payout level among most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Admiral Group earnings per share are up 7.6% per annum over the last five years.
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, Admiral Group has lifted its dividend by approximately 3.5% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Admiral Group for the upcoming dividend? Admiral Group has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
With that being said, if dividends aren't your biggest concern with Admiral Group, you should know about the other risks facing this business. Be aware that Admiral Group is showing 3 warning signs in our investment analysis, and 1 of those is significant...
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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