Is It Worth Considering The Interpublic Group of Companies, Inc. (NYSE:IPG) For Its Upcoming Dividend?
It looks like The Interpublic Group of Companies, Inc. (NYSE:IPG) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of November, you won't be eligible to receive this dividend, when it is paid on the 15th of December.
Interpublic Group of Companies's upcoming dividend is US$0.26 a share, following on from the last 12 months, when the company distributed a total of US$1.02 per share to shareholders. Based on the last year's worth of payments, Interpublic Group of Companies has a trailing yield of 4.4% on the current stock price of $23.23. If you buy this business for its dividend, you should have an idea of whether Interpublic Group of Companies's dividend is reliable and sustainable. So we need to investigate whether Interpublic Group of Companies can afford its dividend, and if the dividend could grow.
See our latest analysis for Interpublic Group of Companies
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. Interpublic Group of Companies paid out 68% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Interpublic Group of Companies's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Interpublic Group of Companies earnings per share are up 5.1% per annum over the last five years. Decent historical earnings per share growth suggests Interpublic Group of Companies has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Interpublic Group of Companies has lifted its dividend by approximately 16% 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid Interpublic Group of Companies? Earnings per share growth has been modest and Interpublic Group of Companies paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about Interpublic Group of Companies from a dividend perspective.
While it's tempting to invest in Interpublic Group of Companies for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 3 warning signs for Interpublic Group of Companies you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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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