IPH (ASX:IPH) Has Announced That It Will Be Increasing Its Dividend To A$0.16

IPH Limited's (ASX:IPH) dividend will be increasing from last year's payment of the same period to A$0.16 on 16th of September. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.

Check out our latest analysis for IPH

IPH Is Paying Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 127% of what it was earning and 77% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

EPS is set to grow by 1.4% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 134%, which is a bit high and could start applying pressure to the balance sheet.

IPH Is Still Building Its Track Record

IPH's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the annual payment back then was A$0.07, compared to the most recent full-year payment of A$0.305. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. IPH hasn't seen much change in its earnings per share over the last five years. So the company has struggled to grow its EPS yet it's still paying out 127% of its earnings. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think IPH will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think IPH is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 1 warning sign for IPH that investors should take into consideration. Is IPH 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.