Yahoo Finance 3i Group (LON:III) Is Increasing Its Dividend To £0.345
The board of 3i Group plc (LON:III) has announced that it will be paying its dividend of £0.345 on the 26th of July, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.
View our latest analysis for 3i Group
3i Group's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, 3i Group's dividend was only 15% of earnings, however it was paying out 162% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.
Looking forward, earnings per share is forecast to rise by 24.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 15% by next year, which is in a pretty sustainable range.
3i Group Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was £0.081, compared to the most recent full-year payment of £0.61. This implies that the company grew its distributions at a yearly rate of about 22% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. 3i Group has seen EPS rising for the last five years, at 25% 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.
In Summary
Overall, we always like to see the dividend being raised, but we don't think 3i Group will make a great income stock. While 3i Group is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for 3i Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
