Polar Capital Holdings' (LON:POLR) Shareholders Will Receive A Bigger Dividend Than Last Year

Simply Wall St
·3 min read

Polar Capital Holdings plc (LON:POLR) has announced that it will be increasing its dividend on the 29th of July to UK£0.32. This makes the dividend yield 8.8%, which is above the industry average.

View our latest analysis for Polar Capital Holdings

Polar Capital Holdings Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 91% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to fall by 20.3%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 124%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
historic-dividend

Polar Capital Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from UK£0.075 in 2012 to the most recent annual payment of UK£0.46. This means that it has been growing its distributions at 20% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Could Be Constrained

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Polar Capital Holdings has grown earnings per share at 24% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Polar Capital Holdings hasn't been doing.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The dividend is easily covered by cash flows and has a good track record, but we think the payout ratio might be a bit high. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Polar Capital Holdings you should be aware of, and 1 of them can't be ignored. Is Polar Capital 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.

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