Dividend Investors: Don't Be Too Quick To Buy Intermediate Capital Group plc (LON:ICP) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Intermediate Capital Group plc (LON:ICP) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 10th of December will not receive the dividend, which will be paid on the 8th of January.

Intermediate Capital Group's next dividend payment will be UK£0.17 per share, and in the last 12 months, the company paid a total of UK£0.51 per share. Looking at the last 12 months of distributions, Intermediate Capital Group has a trailing yield of approximately 3.0% on its current stock price of £17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Intermediate Capital Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Intermediate Capital Group paid out 97% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see Intermediate Capital Group's earnings per share have been shrinking at 3.8% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Intermediate Capital Group has increased its dividend at approximately 8.6% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Intermediate Capital Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is Intermediate Capital Group worth buying for its dividend? Not only are earnings per share shrinking, but Intermediate Capital Group is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Intermediate Capital Group and want to know more, you'll find it very useful to know what risks this stock faces. For example - Intermediate Capital Group has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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