RIT Capital Partners (LON:RCP) Is Increasing Its Dividend To £0.19

RIT Capital Partners Plc (LON:RCP) has announced that it will be increasing its periodic dividend on the 27th of October to £0.19, which will be 2.7% higher than last year's comparable payment amount of £0.185. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.

Check out our latest analysis for RIT Capital Partners

RIT Capital Partners Might Find It Hard To Continue The Dividend

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even though RIT Capital Partners isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS might fall by 15.2% based on recent performance. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.

RIT Capital Partners Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of £0.20 in 2013 to the most recent total annual payment of £0.38. This means that it has been growing its distributions at 6.6% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though RIT Capital Partners' EPS has declined at around 15% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think RIT Capital Partners' payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think RIT Capital Partners is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for RIT Capital Partners that you should be aware of before investing. 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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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.