IPD Group's (ASX:IPG) Shareholders Will Receive A Bigger Dividend Than Last Year

IPD Group Limited (ASX:IPG) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of October to A$0.047. This will take the annual payment to 2.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for IPD Group

IPD Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, IPD Group's dividend was only 50% of earnings, however it was paying out 148% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 55.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

IPD Group Is Still Building Its Track Record

It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings have grown by 30% in the last year. This is a good sign, and could set the company up to be a solid dividend payer in the future if it continues. IPD Group is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future. We do note though, one year is too short a time to be drawing strong conclusions about a company's future prospects.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While IPD Group is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for IPD Group that investors need to be conscious of moving forward. Is IPD Group 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.