IGM Financial (TSE:IGM) Is Due To Pay A Dividend Of CA$0.56

IGM Financial Inc. (TSE:IGM) has announced that it will pay a dividend of CA$0.56 per share on the 29th of October. This makes the dividend yield 5.0%, which will augment investor returns quite nicely.

Check out our latest analysis for IGM Financial

IGM Financial'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, IGM Financial was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 90% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 13.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

IGM Financial Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was CA$2.05, compared to the most recent full-year payment of CA$2.25. Dividend payments have been growing, but very slowly over the period. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 4.3% per year. Growth of 4.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On IGM Financial's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about IGM Financial's payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments IGM Financial has been making. We don't think IGM Financial is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for IGM Financial (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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