TP ICAP Group (LON:TCAP) Will Pay A Smaller Dividend Than Last Year
The board of TP ICAP Group PLC (LON:TCAP) has announced it will be reducing its dividend by 29% on the 5th of November, with shareholders receiving UK£0.04. However, the dividend yield of 3.6% is still a decent boost to shareholder returns.
See our latest analysis for TP ICAP Group
TP ICAP Group's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, TP ICAP Group's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,577% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Over the next year, EPS is forecast to expand by 113.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
TP ICAP Group's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. Since 2017, the first annual payment was UK£0.11, compared to the most recent full-year payment of UK£0.08. Doing the maths, this is a decline of about 8.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth May Be Hard To Come By
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past three years, it looks as though TP ICAP Group's EPS has declined at around 5.1% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
The company has also been raising capital by issuing stock equal to 41% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
TP ICAP Group's Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think TP ICAP Group is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 5 warning signs for TP ICAP Group (of which 1 is significant!) you should know about. We have also put together a list of global stocks with a solid dividend.
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.
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