CMC Markets' (LON:CMCX) Dividend Will Be Reduced To £0.039

CMC Markets plc's (LON:CMCX) dividend is being reduced from last year's payment covering the same period to £0.039 on the 11th of August. The yield is still above the industry average at 5.0%.

Check out our latest analysis for CMC Markets

CMC Markets' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last dividend was quite easily covered by CMC Markets' earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 90.1% over the next year. If the dividend continues on this path, the payout ratio could be 31% by next year, which we think can be pretty sustainable going forward.

CMC Markets' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2016, the dividend has gone from £0.107 total annually to £0.074. This works out to be a decline of approximately 5.2% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. It's not great to see that CMC Markets' earnings per share has fallen at approximately 3.0% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On CMC Markets' Dividend

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for CMC Markets that you should be aware of before investing. Is CMC Markets 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.