London Stock Exchange Group (LON:LSEG) has announced it will raise its dividend to 0.753

The administration of London Stock Exchange Group plc (LON:LSEG) has announced that it will pay its dividend of 0.753 on May 24, a higher payment than last year’s comparable dividend. Although the dividend has increased, the yield is still quite low at only 1.4%.

Check out our latest analysis for London Stock Exchange Group

The income from the London Stock Exchange Group easily covers the distributions

It would be nice if the return were higher, but we also need to check whether higher dividend payments are sustainable. Before this announcement, the London Stock Exchange Group paid out 75% of profits, but a relatively small 33% of free cash flows. Since the dividend only pays cash to shareholders, we care more about the cash payout ratio, which we can see leaves enough for reinvestment in the company.

In the coming year, earnings per share are expected to increase by 160.8%. Assuming the dividend continues recent trends, we think the payout ratio could be 33%, which would be quite comfortable to push the dividend forward.

Dividend volatility

The company has a long track record on dividends, but it’s not looking good with past cuts. Since 2013, the annual payment was then 0.283, compared to the most recent annual payment of 1.07. This equates to a compound annual growth rate (CAGR) of about 14% per year during that time. Despite the rapid growth in dividends over the past few years, we’ve also seen payouts fall in the past, so that makes us cautious.

Dividend growth prospects are limited

With a relatively volatile dividend, it’s even more important to see if earnings per share grow. Although it’s important to note that the London Stock Exchange Group’s earnings per share have essentially not grown from five years ago, which could erode the dividend’s purchasing power over time.

In summary

In general, we always like to see the dividend increased, but we don’t think the London Stock Exchange Group will deliver a great income share. Payments haven’t been particularly stable and we don’t see huge growth potential, but with a dividend well backed by cash flows it could prove reliable in the near term. Overall, we don’t think this business has a good revenue stream.

Market movements testify to the high valuation of a consistent dividend policy compared to a more unpredictable one. Still, when analyzing a company, investors should consider a host of other factors besides dividend payments. Without at least some earnings per share growth over time, the dividend will eventually come under pressure from competition or inflation. Very few companies consistently see their revenues drop forever year after year, which is why it might be worth seeing what the 16 analysts we follow make predictions for the future. If you’re a dividend investor, you might also want to check out our curated list of high yield dividend stocks.

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