Do These 3 Checks Before Buying IG Group Holdings plc (LON:IGG) For Its Upcoming Dividend

January 25, 2020
  •  Updated
November 29, 2022
LSE:IGG
Source: Shutterstock

IG Group Holdings plc (LON:IGG) stock is about to trade ex-dividend in 3 days time. If you purchase the stock on or after the 30th of January, you won't be eligible to receive this dividend, when it is paid on the 27th of February.

IG Group Holdings's next dividend payment will be UK£0.13 per share. Last year, in total, the company distributed UK£0.43 to shareholders. Based on the last year's worth of payments, IG Group Holdings stock has a trailing yield of around 6.2% on the current share price of £7.008. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for IG Group Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. IG Group Holdings paid out 106% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

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

LSE:IGG Historical Dividend Yield, January 26th 2020
LSE:IGG Historical Dividend Yield, January 26th 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about IG Group Holdings's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, IG Group Holdings has lifted its dividend by approximately 11% a year on average.

To Sum It Up

Has IG Group Holdings got what it takes to maintain its dividend payments? IG Group Holdings's earnings have barely moved in recent times, and the company is paying out a disagreeably high percentage of its earnings; a mediocre combination. IG Group Holdings doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Curious what other investors think of IG Group Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.