Polar Capital Holdings' (LON:POLR) Shareholders Will Receive A Bigger Dividend Than Last Year

Polar Capital Holdings plc's (LON:POLR) dividend will be increasing to UK£0.32 on 29th of July. This makes the dividend yield 8.8%, which is above the industry average.

Check out our latest analysis for Polar Capital Holdings

Polar Capital Holdings Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 91% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to fall by 20.3%. If the dividend continues along recent trends, we estimate the payout ratio could reach 124%, which could put the dividend in jeopardy if the company's earnings don't improve.

Polar Capital Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from UK£0.075 to UK£0.46. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Polar Capital Holdings Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Polar Capital Holdings has seen EPS rising for the last five years, at 24% per annum. However, Polar Capital Holdings isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Polar Capital Holdings' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look pretty sustainable with good earnings coverage and a reasonable track record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Polar Capital Holdings (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.