RIT Capital Partners (LON:RCP) Is Paying Out A Larger Dividend Than Last Year

RIT Capital Partners plc (LON:RCP) will increase its dividend on the 29th of October to UK£0.18, which is 0.7% higher than last year. Even though the dividend went up, the yield is still quite low at only 1.3%.

Check out our latest analysis for RIT Capital Partners

RIT Capital Partners' Earnings Easily Cover the Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, RIT Capital Partners was paying only paying out a fraction of earnings, but the payment was a massive 143% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 58.1% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 2.8% by next year, which is in a pretty sustainable range.

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. The dividend has gone from UK£0.04 in 2011 to the most recent annual payment of UK£0.35. This means that it has been growing its distributions at 24% per annum 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.

The Dividend Looks Likely To Grow

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. We are encouraged to see that RIT Capital Partners has grown earnings per share at 58% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On RIT Capital Partners' Dividend

Overall, we always like to see the dividend being raised, but we don't think RIT Capital Partners will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for RIT Capital Partners (of which 1 makes us a bit uncomfortable!) you should know about. We have also put together a list of global stocks with a solid dividend.

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