Arbuthnot Banking Group's (LON:ARBB) Dividend Will Be Increased To £0.17
The board of Arbuthnot Banking Group PLC (LON:ARBB) has announced that it will be paying its dividend of £0.17 on the 23rd of September, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 4.8%, which is fairly typical for the industry.
View our latest analysis for Arbuthnot Banking Group
Arbuthnot Banking Group's Payment Expected To Have Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time.
Having distributed dividends for at least 10 years, Arbuthnot Banking Group has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Arbuthnot Banking Group's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Arbuthnot Banking Groupis pulling cash from elsewhere to keep its shareholders happy.
Analysts expect a massive rise in earnings per share in the next 3 years. They also estimate the payout ratio reaching 29% in the same time period, which is fairly sustainable.
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 £0.24 in 2012, and the most recent fiscal year payment was £0.44. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
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. Arbuthnot Banking Group hasn't seen much change in its earnings per share over the last five years. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Arbuthnot Banking Group that investors need to be conscious of moving forward. Is Arbuthnot Banking Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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