IG Group Holdings (LON:IGG) Is Increasing Its Dividend To £0.3194

The board of IG Group Holdings plc (LON:IGG) has announced that the dividend on 19th of October will be increased to £0.3194, which will be 2.2% higher than last year's payment of £0.312 which covered the same period. This takes the dividend yield to 6.7%, which shareholders will be pleased with.

View our latest analysis for IG Group Holdings

IG Group Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, IG Group Holdings' dividend was only 52% of earnings, however it was paying out 118% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 18.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

IG Group Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of £0.225 in 2013 to the most recent total annual payment of £0.452. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

IG Group Holdings Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. IG Group Holdings has seen EPS rising for the last five years, at 7.9% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On IG Group Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think IG Group Holdings' payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for IG Group Holdings that investors need to be conscious of moving forward. Is IG Group Holdings 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.