London Stock Exchange Group (LON:LSEG) Is Due To Pay A Dividend Of £0.41

The board of London Stock Exchange Group plc (LON:LSEG) has announced that it will pay a dividend on the 18th of September, with investors receiving £0.41 per share. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.

View our latest analysis for London Stock Exchange Group

London Stock Exchange Group's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, the company was paying out 95% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 30%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next year is set to see EPS grow by 128.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 46%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.299 in 2014, and the most recent fiscal year payment was £1.15. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. London Stock Exchange Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that London Stock Exchange Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think London Stock Exchange Group's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for London Stock Exchange Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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