Arbuthnot Banking Group's (LON:ARBB) Shareholders Will Receive A Bigger Dividend Than Last Year

Arbuthnot Banking Group PLC's (LON:ARBB) dividend will be increasing from last year's payment of the same period to £0.17 on 23rd of September. The payment will take the dividend yield to 5.3%, which is in line with the average for the industry.

View our latest analysis for Arbuthnot Banking Group

Arbuthnot Banking Group's Earnings Will Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Arbuthnot Banking Group has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is very worrying for shareholders, as this shows that Arbuthnot Banking Group will not be able to sustain its dividend at its current rate.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. They also expect the future payout ratio to be 28% over the same period, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.24 in 2012, and the most recent fiscal year payment was £0.44. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

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. Arbuthnot Banking Group 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 109% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Arbuthnot Banking Group's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Arbuthnot Banking Group that you should be aware of before investing. Is Arbuthnot Banking 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.