IPH Limited's (ASX:IPH) dividend will be increasing from last year's payment of the same period to A$0.16 on 16th of September. This takes the annual payment to 3.1% of the current stock price, which is about average for the industry.
IPH Is Paying Out More Than It Is Earning
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, the dividend made up 77% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.
EPS is set to grow by 1.4% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 134%, which is a bit high and could start applying pressure to the balance sheet.
IPH Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the dividend has gone from A$0.07 total annually to A$0.305. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
IPH May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately, IPH's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. So the company has struggled to grow its EPS yet it's still paying out 127% of its earnings. 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.
IPH's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think IPH's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for IPH that investors should take into consideration. Is IPH 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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