Admiral Group (LON:ADM) Is Paying Out Less In Dividends Than Last Year

Admiral Group plc (LON:ADM) has announced that on 6th of October, it will be paying a dividend of£0.51, which a reduction from last year's comparable dividend. This means that the annual payment will be 4.2% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Admiral Group

Admiral Group's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last dividend, Admiral Group is earning enough to cover the payment, but then it makes up 219% 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 29.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 71% by next year, which is in a pretty sustainable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was £0.906, compared to the most recent full-year payment of £1. This means that it has been growing its distributions at 1.0% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth May Be Hard To Achieve

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. Although it's important to note that Admiral Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 0.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Admiral Group is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Admiral Group has 3 warning signs (and 1 which is a bit unpleasant) we think 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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