The board of International Personal Finance plc (LON:IPF) has announced that it will be paying its dividend of £0.031 on the 29th of September, an increased payment from last year’s comparable dividend. The payment will take the dividend yield to 8.0%, which is in line with the average for the industry.
See our latest analysis for International Personal Finance
International Personal Finance’s Earnings Easily Cover The Distributions
Unless the payments are sustainable, the dividend yield doesn’t mean too much. Prior to this announcement, International Personal Finance’s dividend was only 48% of earnings, however it was paying out 124% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 38.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2013, the annual payment back then was £0.0774, compared to the most recent full-year payment of £0.096. This implies that the company grew its distributions at a yearly rate of about 2.2% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend’s Growth Prospects Are Limited
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. Over the past five years, it looks as though International Personal Finance’s EPS has declined at around 3.2% a year. A modest decline in earnings isn’t great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We’ve spotted 2 warning signs for International Personal Finance (of which 1 is potentially serious!) you should know about. Is International Personal Finance 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.
