St. James's Place's (LON:STJ) Dividend Will Be Reduced To £0.06

St. James's Place plc (LON:STJ) is reducing its dividend from last year's comparable payment to £0.06 on the 20th of September. This means that the annual payment is 1.7% of the current stock price, which is lower than what the rest of the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that St. James's Place's stock price has increased by 45% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for St. James's Place

St. James's Place's Distributions May Be Difficult To Sustain

If it is predictable over a long period, even low dividend yields can be attractive. Despite not generating a profit, St. James's Place is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise by 98.9% over the next year. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.16 in 2014, and the most recent fiscal year payment was £0.12. This works out to be a decline of approximately 2.8% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

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. Over the past five years, it looks as though St. James's Place's EPS has declined at around 4.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of St. James's Place's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for St. James's Place that investors should take into consideration. 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.