London Stock Exchange Group (LON:LSEG) Is Increasing Its Dividend To £0.357

The board of London Stock Exchange Group plc (LON:LSEG) has announced that the dividend on 20th of September will be increased to £0.357, which will be 13% higher than last year's payment of £0.317 which covered the same period. Even though the dividend went up, the yield is still quite low at only 1.3%.

Check out 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. Prior to this announcement, London Stock Exchange Group's dividend made up quite a large proportion of earnings but only 33% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 127.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from £0.287 total annually to £1.07. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Unfortunately, London Stock Exchange Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

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 payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. See if the 17 analysts are forecasting a turnaround in our free collection of analyst estimates here. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.