3i Group (LON:III) Is Increasing Its Dividend To £0.425
We check all companies for important risks. See what we found for 3i Group in our free report.
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, 3i Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
The next year is set to see EPS grow by 44.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for 3i Group
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was £0.081 in 2015, and the most recent fiscal year payment was £0.73. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that 3i Group has grown earnings per share at 88% per year over the past five years. 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, it's great to see that the company can raise the dividend and keep it in a sustainable range. However, lack of cash flows makes us wary of the potential for cuts in the dividend's future, even though the dividend is generally looking okay. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 7 analysts we track are forecasting for 3i Group for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
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