Sabre Insurance Group (LON:SBRE) Is Reducing Its Dividend To £0.017

Sabre Insurance Group plc's (LON:SBRE) dividend is being reduced from last year's payment covering the same period to £0.017 on the 1st of June. The dividend yield will be in the average range for the industry at 3.9%.

Check out our latest analysis for Sabre Insurance Group

Sabre Insurance Group's Earnings Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Sabre Insurance Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 175.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 23% which brings it into quite a comfortable range.

Sabre Insurance Group's Dividend Has Lacked Consistency

Sabre Insurance Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2018, the annual payment back then was £0.144, compared to the most recent full-year payment of £0.045. This works out to a decline of approximately 69% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 22% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Sabre Insurance Group that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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