St. James's Place's (LON:STJ) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of St. James's Place plc (LON:STJ) has announced that it will be increasing its dividend by 1.5% on the 22nd of September to £0.1583, up from last year's comparable payment of £0.156. This takes the dividend yield to 6.1%, which shareholders will be pleased with.

View our latest analysis for St. James's Place

St. James's Place's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, St. James's Place was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 32.1% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 68% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of £0.106 in 2013 to the most recent total annual payment of £0.53. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. St. James's Place has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

St. James's Place's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. St. James's Place has seen EPS rising for the last five years, at 18% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

St. James's Place's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think St. James's Place will make a great income stock. Strong earnings growth means St. James's Place has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for St. James's Place 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.