Admiral Group (LON:ADM) Is Due To Pay A Dividend Of £0.52

Admiral Group plc (LON:ADM) has announced that it will pay a dividend of £0.52 per share on the 7th of June. This payment means the dividend yield will be 3.6%, which is below the average for the industry.

View our latest analysis for Admiral Group

Admiral Group's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Admiral Group's dividend was only 66% of earnings, however it was paying out 152% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 63.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 61%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from £0.703 total annually to £1.03. This works out to be a compound annual growth rate (CAGR) of approximately 3.9% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Admiral Group's EPS has declined at around 3.9% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Admiral Group's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Admiral Group's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Admiral Group is a great stock to add to your portfolio if income is your focus.

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 Admiral Group that you should be aware of before investing. Is Admiral Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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