Stock Analysis

Close Brothers Group (LON:CBG) Is Increasing Its Dividend To £0.225

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Close Brothers Group plc (LON:CBG) has announced that it will be increasing its periodic dividend on the 26th of April to £0.225, which will be 2.3% higher than last year's comparable payment amount of £0.22. This makes the dividend yield 7.3%, which is above the industry average.

See our latest analysis for Close Brothers Group

Close Brothers Group's Payment Expected To Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Close Brothers Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign that could mean that Close Brothers Group's dividend at its current rate may no longer be sustainable for longer.

Looking forward, EPS is forecast to rise by 147.2% over the next 3 years. For the same time horizon, analysts estimate that the future payout ratio could be 49% which would be quite comfortable going to take the dividend forward.

LSE:CBG Historic Dividend March 17th 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of £0.415 in 2013 to the most recent total annual payment of £0.66. This implies that the company grew its distributions at a yearly rate of about 4.7% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Close Brothers Group's EPS has declined at around 17% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Close Brothers Group's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Close Brothers Group's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Close Brothers Group that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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