Is It Worth Considering International Consolidated Airlines Group S.A. (LON:IAG) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that International Consolidated Airlines Group S.A. (LON:IAG) is about to go ex-dividend in just 2 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase International Consolidated Airlines Group's shares before the 26th of June in order to be eligible for the dividend, which will be paid on the 30th of June.

The company's next dividend payment will be €0.06 per share. Last year, in total, the company distributed €0.12 to shareholders. Based on the last year's worth of payments, International Consolidated Airlines Group stock has a trailing yield of around 3.3% on the current share price of UK£3.131. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. International Consolidated Airlines Group has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether International Consolidated Airlines Group generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 4.1% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

See our latest analysis for International Consolidated Airlines Group

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. International Consolidated Airlines Group's earnings per share have fallen at approximately 6.3% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. International Consolidated Airlines Group has seen its dividend decline 5.0% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Has International Consolidated Airlines Group got what it takes to maintain its dividend payments? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, International Consolidated Airlines Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

While it's tempting to invest in International Consolidated Airlines Group for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for International Consolidated Airlines Group and you should be aware of them before buying any shares.

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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.