Stock Analysis

Sabre Insurance Group's (LON:SBRE) Dividend Will Be Reduced To UK£0.093

  •  Updated
LSE:SBRE
Source: Shutterstock

Sabre Insurance Group plc (LON:SBRE) has announced it will be reducing its dividend payable on the 1st of June to UK£0.093. This means the annual payment is 5.7% of the current stock price, which is above the average for the industry.

See our latest analysis for Sabre Insurance Group

Sabre Insurance Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Sabre Insurance Group's dividend was only 69% of earnings, however it was paying out 97% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 12.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

historic-dividend
LSE:SBRE Historic Dividend March 26th 2022

Sabre Insurance Group's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The first annual payment during the last 4 years was UK£0.14 in 2018, and the most recent fiscal year payment was UK£0.13. The dividend has shrunk at around 2.5% a year during that period. 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 May Be Hard To Come By

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Sabre Insurance Group has seen earnings per share falling at 6.6% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Sabre Insurance Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Sabre Insurance Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Sabre Insurance Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis