London Stock Exchange Group (LON:LSEG) Is Increasing Its Dividend To £0.753

The board of London Stock Exchange Group plc (LON:LSEG) has announced that it will be paying its dividend of £0.753 on the 24th of May, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 1.4%.

See our latest analysis for London Stock Exchange Group

London Stock Exchange Group's Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before this announcement, London Stock Exchange Group was paying out 75% of earnings, but a comparatively small 33% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Looking forward, earnings per share is forecast to rise by 159.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 33% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.283, compared to the most recent full-year payment of £1.07. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year 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.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. 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.

Our Thoughts On London Stock Exchange Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think London Stock Exchange Group will make a great income stock. 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 be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 16 analysts we track are forecasting for the future. Is London Stock Exchange Group 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.