GlobalData Plc (LON: DATA) has announced that it will be increasing its dividend from last year’s comparable payment on the 7th of October to £0.077. Although the dividend is now higher, the yield is only 1.9%, which is below the industry average.
While yield is important, another factor to consider about a company’s dividend is whether the current payout levels are feasible. Based on the last payment, GlobalData’s profits didn’t cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.
The next year is set to see EPS grow by 112.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 56% which would be quite comfortable going to take the dividend forward.
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 7 years was £0.025 in 2015, and the most recent fiscal year payment was £0.209. This works out to be a compound annual growth rate (CAGR) of approximately 35% a year over that time. GlobalData has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. GlobalData has seen EPS rising for the last five years, at 41% per annum. Strong earnings are nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.
