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

Arbuthnot Banking Group PLC (LON:ARBB) will increase its dividend from last year's comparable payment on the 23rd of September to £0.17. This takes the annual payment to 4.9% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Arbuthnot Banking Group

Arbuthnot Banking Group's Earnings Will Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive.

Arbuthnot Banking Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. 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 an alarming sign for the sustainability of its dividends, as it may mean that Arbuthnot Banking Groupis pulling cash from elsewhere to keep its shareholders happy.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. They also estimate that the future payout ratio could reach 29% in the same time horizon, which is in a comfortable range for us.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from £0.24 total annually to £0.44. This means that it has been growing its distributions at 6.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that Arbuthnot Banking Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The earnings growth is anaemic, and the company is paying out 109% of its profit. 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.

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 track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Arbuthnot Banking Group that investors should take into consideration. 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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