Stock Analysis

London Stock Exchange Group's (LON:LSEG) Upcoming Dividend Will Be Larger Than Last Year's

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LSE:LSEG
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The board of London Stock Exchange Group plc (LON:LSEG) has announced that the dividend on 20th of September will be increased to £0.317, which will be 27% higher than last year's payment of £0.25 which covered the same period. Despite this raise, the dividend yield of 1.1% is only a modest boost to shareholder returns.

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

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, London Stock Exchange Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 33% which is fairly sustainable.

historic-dividend
LSE:LSEG Historic Dividend August 9th 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. Since 2012, the dividend has gone from £0.273 total annually to £0.95. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. London Stock Exchange Group has seen EPS rising for the last five years, at 8.2% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

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 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. 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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