Stock Analysis

London Stock Exchange Group (LON:LSEG) Is Increasing Its Dividend To UK£0.70

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The board of London Stock Exchange Group plc (LON:LSEG) has announced that it will be increasing its dividend on the 25th of May to UK£0.70. 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 Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, London Stock Exchange Group's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 184.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 40% which would be quite comfortable going to take the dividend forward.

LSE:LSEG Historic Dividend April 28th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was UK£0.27 in 2012, and the most recent fiscal year payment was UK£0.95. This means that it has been growing its distributions at 13% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

There Isn't Much Room To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. London Stock Exchange Group has impressed us by growing EPS at 8.2% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

Our Thoughts On London Stock Exchange Group's Dividend

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. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for London Stock Exchange Group that investors should take into consideration. 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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