ITV (LON:ITV) Has Announced A Dividend Of £0.033

ITV plc (LON:ITV) has announced that it will pay a dividend of £0.033 per share on the 25th of May. The dividend yield will be 7.6% based on this payment which is still above the industry average.

View our latest analysis for ITV

ITV's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 124% 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.

Looking forward, earnings per share is forecast to fall by 9.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 45%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the dividend has gone from £0.016 total annually to £0.066. This means that it has been growing its distributions at 15% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

ITV May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. ITV hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 0.9% per annum, and is paying out quite a lot of its earnings to shareholders. 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 nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, ITV has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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