Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that TP ICAP plc (LON:TCAP) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 2nd of April, you won’t be eligible to receive this dividend, when it is paid on the 19th of May.
TP ICAP’s next dividend payment will be UK£0.11 per share. Last year, in total, the company distributed UK£0.17 to shareholders. Based on the last year’s worth of payments, TP ICAP has a trailing yield of 4.9% on the current stock price of £3.439. If you buy this business for its dividend, you should have an idea of whether TP ICAP’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for TP ICAP
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. TP ICAP distributed an unsustainably high 141% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
LSE:TCAP Historical Dividend Yield March 28th 2020
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we’re concerned to see TP ICAP’s earnings per share have dropped 12% a year over the past three years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, TP ICAP has lifted its dividend by approximately 15% a year on average. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. TP ICAP is already paying out 141% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is TP ICAP an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and TP ICAP is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. TP ICAP doesn’t appear to have a lot going for it, and we’re not inclined to take a risk on owning it for the dividend.
Although, if you’re still interested in TP ICAP and want to know more, you’ll find it very useful to know what risks this stock faces. Every company has risks, and we’ve spotted 3 warning signs for TP ICAP you should know about.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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