FDM Group (Holdings) (LON:FDM) Has Announced A Dividend Of £0.125

FDM Group (Holdings) plc (LON:FDM) will pay a dividend of £0.125 on the 27th of June. The dividend yield of 8.9% is still a nice boost to shareholder returns, despite the cut.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Estimates Indicate FDM Group (Holdings)'s Could Struggle to Maintain Dividend Payments In The Future

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 120% of what it was earning and 87% 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.

The next 12 months is set to see EPS grow by 13.8%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 113%, which probably can't continue without putting some pressure on the balance sheet.

See our latest analysis for FDM Group (Holdings)

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £0.15 in 2015, and the most recent fiscal year payment was £0.225. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 13% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

FDM Group (Holdings)'s Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for FDM Group (Holdings) 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.