Readers hoping to buy Informa plc (LON:INF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 8th of August in order to be eligible for this dividend, which will be paid on the 13th of September.
Informa's upcoming dividend is UK£0.075 a share, following on from the last 12 months, when the company distributed a total of UK£0.22 per share to shareholders. Based on the last year's worth of payments, Informa stock has a trailing yield of around 2.6% on the current share price of £8.508. If you buy this business for its dividend, you should have an idea of whether Informa's dividend is reliable and sustainable. So we need to investigate whether Informa can afford its dividend, and if the dividend could grow.
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. Last year, Informa paid out 93% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Informa's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Informa, with earnings per share up 7.2% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Informa has increased its dividend at approximately 8.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Informa for the upcoming dividend? Earnings per share have grown modestly, and last year Informa paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. To summarise, Informa looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Ever wonder what the future holds for Informa? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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