Sabre Insurance Group plc's (LON:SBRE) dividend is being reduced from last year's payment covering the same period to £0.028 on the 22nd of September. The yield is still above the industry average at 9.9%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Sabre Insurance Group's stock price has reduced by 41% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Sabre Insurance Group's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 81% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.
Over the next year, EPS is forecast to expand by 136.3%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 48% which would be quite comfortable going to take the dividend forward.
Sabre Insurance Group's Dividend Has Lacked Consistency
Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the dividend has gone from £0.144 total annually to £0.121. This works out to be a decline of approximately 4.3% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
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. Earnings per share has been sinking by 41% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Sabre Insurance Group's Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Sabre Insurance Group (of which 1 shouldn't be ignored!) you should know about. Is Sabre Insurance Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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