Admiral Group (LON:ADM) Is Increasing Its Dividend To £1.21

Admiral Group plc (LON:ADM) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of June to £1.21. This will take the annual payment to 6.5% of the stock price, which is above what most companies in the industry pay.

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Admiral Group's Projected Earnings Seem Likely To Cover Future Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Admiral Group is earning enough to cover the payment, but then it makes up 257% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 21.4%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Check out our latest analysis for Admiral Group

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the dividend has gone from £1.00 total annually to £1.92. This means that it has been growing its distributions at 6.7% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Admiral Group might have put its house in order since then, but we remain cautious.

Admiral Group Could Grow Its Dividend

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. Admiral Group has seen EPS rising for the last five years, at 8.9% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Admiral Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Admiral Group is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Admiral Group (of which 1 is significant!) you should know about. 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.