FDM Group (Holdings) (LON:FDM) Has Announced A Dividend Of £0.19

The board of FDM Group (Holdings) plc (LON:FDM) has announced that it will pay a dividend on the 28th of June, with investors receiving £0.19 per share. This means the annual payment is 8.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for FDM Group (Holdings)

FDM Group (Holdings) Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 96% of what it was earning and 79% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Looking forward, earnings per share is forecast to fall by 34.0% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 161%, which is definitely a bit high to be sustainable going forward.

historic-dividend

FDM Group (Holdings)'s Dividend Has Lacked Consistency

FDM Group (Holdings) has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was £0.15, compared to the most recent full-year payment of £0.36. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

FDM Group (Holdings) May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Unfortunately, FDM Group (Holdings)'s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The earnings growth is anaemic, and the company is paying out 96% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, FDM Group (Holdings) has 2 warning signs (and 1 which is concerning) we think you should know about. Is FDM Group (Holdings) not quite the opportunity you were looking for? Why not check out our selection of top 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.