AIB Group (ISE:A5G) Is Paying Out A Larger Dividend Than Last Year

AIB Group plc (ISE:A5G) has announced that it will be increasing its dividend from last year's comparable payment on the 9th of May to €0.3698. Based on this payment, the dividend yield for the company will be 5.6%, which is fairly typical for the industry.

AIB Group's Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

AIB Group has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Based on AIB Group's last earnings report, the payout ratio is at a decent 40%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 3.3% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 48% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for AIB Group

AIB Group's Dividend Has Lacked Consistency

It's comforting to see that AIB Group has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 7 years was €0.12 in 2018, and the most recent fiscal year payment was €0.3698. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. AIB Group 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.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. AIB Group has seen EPS rising for the last five years, at 52% per annum. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

AIB Group Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that AIB Group is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for AIB Group you should be aware of, and 1 of them shouldn't be ignored. Is AIB Group not quite the opportunity you were looking for? Why not check out our selection of top 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.