RIT Capital Partners (LON:RCP) Is Paying Out A Larger Dividend Than Last Year
RIT Capital Partners Plc's (LON:RCP) periodic dividend will be increasing on the 27th of October to £0.19, with investors receiving 2.7% more than last year's £0.185. Despite this raise, the dividend yield of 2.0% is only a modest boost to shareholder returns.
View our latest analysis for RIT Capital Partners
RIT Capital Partners Might Find It Hard To Continue The Dividend
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. While RIT Capital Partners is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Looking forward, earnings per share could fall by 15.2% over the next year if the trend of the last few years can't be broken. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.
RIT Capital Partners Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from £0.20 total annually to £0.38. This implies that the company grew its distributions at a yearly rate of about 6.6% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Earnings per share has been sinking by 15% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Our Thoughts On RIT Capital Partners' Dividend
In summary, while it's always good to see the dividend being raised, we don't think RIT Capital Partners' payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
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. Taking the debate a bit further, we've identified 2 warning signs for RIT Capital Partners that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
