Admiral Group plc (LON:ADM) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of October to £0.71. Based on this payment, the dividend yield for the company will be 4.2%, which is fairly typical for the industry.
Check out our latest analysis for Admiral Group
Admiral Group's Dividend Is Well Covered By Earnings
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last payment was quite easily covered by earnings, but it made up 101% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Over the next year, EPS is forecast to expand by 51.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 65%, which is in the range that makes us comfortable with the sustainability of the dividend.
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 £0.995 in 2014, and the most recent fiscal year payment was £1.23. This works out to be a compound annual growth rate (CAGR) of approximately 2.1% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Admiral Group's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.
Admiral Group's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Admiral Group will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Admiral Group that investors should know about before committing capital to this stock. 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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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.
About LSE:ADM
Admiral Group
A financial services company, provides insurance and personal lending products in the United Kingdom, France, Italy, Spain, and the United States.
Adequate balance sheet with moderate growth potential.
