Intermediate Capital Group (LON:ICG) Is Increasing Its Dividend To £0.532

Intermediate Capital Group plc (LON:ICG) will increase its dividend from last year's comparable payment on the 2nd of August to £0.532. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

See our latest analysis for Intermediate Capital Group

Intermediate Capital Group's Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Intermediate Capital Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 92% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 9.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was £0.263 in 2014, and the most recent fiscal year payment was £0.79. This means that it has been growing its distributions at 12% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Intermediate Capital Group has impressed us by growing EPS at 21% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Intermediate Capital Group could prove to be a strong dividend payer.

Our Thoughts On Intermediate Capital Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Intermediate Capital Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Intermediate Capital Group is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 1 warning sign for Intermediate Capital Group that investors should take into consideration. Is Intermediate Capital 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.