Intermediate Capital Group (LON:ICP) Will Pay A Larger Dividend Than Last Year At UK£0.39

Intermediate Capital Group plc (LON:ICP) has announced that it will be increasing its dividend on the 5th of August to UK£0.39. The announced payment will take the dividend yield to 2.5%, which is in line with the average for the industry.

View our latest analysis for Intermediate Capital Group

Intermediate Capital Group's Earnings Easily Cover the Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Intermediate Capital Group was paying only paying out a fraction of earnings, but the payment was a massive 158% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS is forecast to fall by 30.1%. If the dividend continues along recent trends, we estimate the payout ratio could be 57%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from UK£0.24 in 2011 to the most recent annual payment of UK£0.56. This means that it has been growing its distributions at 9.0% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Looks Likely To Grow

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. Intermediate Capital Group has impressed us by growing EPS at 28% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Intermediate Capital Group will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Intermediate Capital Group (of which 2 are a bit concerning!) you should know about. We have also put together a list of global stocks with a solid dividend.

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