Admiral Group's (LON:ADM) Dividend Is Being Reduced To £0.52

Admiral Group plc (LON:ADM) is reducing its dividend from last year's comparable payment to £0.52 on the 2nd of June. However, the dividend yield of 5.4% still remains in a typical range for the industry.

Check out our latest analysis for Admiral Group

Admiral Group Doesn't Earn Enough To Cover Its Payments

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Admiral Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Over the next year, EPS is forecast to expand by 21.1%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 114% over the next year.

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 £1.12. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. 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.

Admiral Group May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. 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. Growth of 1.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Admiral Group's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Admiral Group has been making. We don't think Admiral Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs 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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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.