ITV (LON:ITV) Is Due To Pay A Dividend Of £0.033

ITV plc (LON:ITV) will pay a dividend of £0.033 on the 25th of May. The dividend yield will be 6.1% based on this payment which is still above the industry average.

Check out our latest analysis for ITV

ITV's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite comfortably covered by ITV's earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Over the next year, EPS is forecast to fall by 6.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 44%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.026 in 2013 to the most recent total annual payment of £0.05. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that ITV's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. 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. This could mean the dividend doesn't have the growth potential we look for going into the future.

Our Thoughts On ITV's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about ITV's payments, as there could be some issues with sustaining them into the future. While ITV is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

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. For example, we've picked out 1 warning sign for ITV that investors should know about before committing capital to this stock. Is ITV not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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