FDM Group (Holdings) (LON:FDM) Is Paying Out Less In Dividends Than Last Year

The board of FDM Group (Holdings) plc (LON:FDM) has announced it will be reducing its dividend by 19% on the 3rd of September, with shareholders receiving UK£0.15. This means the annual payment is 3.6% of the current stock price, which is above the average for the industry.

Check out our latest analysis for FDM Group (Holdings)

FDM Group (Holdings) Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 155% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

The next 12 months is set to see EPS grow by 18.6%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 151% over the next year.

FDM Group (Holdings)'s Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the dividend has gone from UK£0.15 to UK£0.47. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. FDM Group (Holdings) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

FDM Group (Holdings) 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. However, FDM Group (Holdings) has only grown its earnings per share at 4.7% per annum over the past five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

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 are bit high to be considered sustainable, and the track record isn't the best. 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. For example, we've picked out 1 warning sign for FDM Group (Holdings) that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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