Rathbones Group (LON:RAT) Has Announced A Dividend Of £0.31

Rathbones Group Plc's (LON:RAT) investors are due to receive a payment of £0.31 per share on 1st of October. This will take the annual payment to 4.9% of the stock price, which is above what most companies in the industry pay.

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Rathbones Group's Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 152% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 7.0%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to expand by 166.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 61% which would be quite comfortable going to take the dividend forward.

See our latest analysis for Rathbones Group

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was £0.52, compared to the most recent full-year payment of £0.93. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Rathbones 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. So the company has struggled to grow its EPS yet it's still paying out 152% of its earnings. This gives limited room for the company to raise the dividend in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Rathbones 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. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Rathbones Group that you should be aware of before investing. 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.