How safe is International Consolidated Airlines' (LON:IAG) dividend?
There is some evidence that buying progressive dividend payers with solid balance sheets is a strategy well-rewarded by the market. After all, who doesn’t like a steady stream of predictable cash payments?
A reputation as a dependable dividend payer takes years to forge and, once created, is a valuable way for a company to signal its long-term profitability to the market and prospective shareholders. This is why, when it comes to dividend-paying companies such as British Airways owner, International Consolidated Airlines (LON:IAG), which currently yields 5.30% on a 12 month rolling basis, it is useful to check how well these payments are covered by earnings.
Earnings per share divided by dividend per share is called dividend cover - and it’s a great way to quickly gauge a company’s capacity to continue its dividend payments.
How to interpret International Consolidated Airlines' (LON:IAG) dividend cover
Generally speaking, a dividend cover of below 1.5 times is cause for concern and a figure below 1 should flare up a potential red flag, as it means that the company cannot currently fund its dividend payments from its earnings. A figure above 1.5 is good, but it is when you are getting above 2 times cover that you see the sign of a high-quality, sustainable dividend payment. Let’s see how International Consolidated Airlines measures up.
We can get all the information we need to see if International Consolidated Airlines has an adequate level of dividend cover from the group’s StockReport. The group’s reported trailing twelve month earnings per share are €1.37 and its trailing twelve month dividend per share is €0.31. Dividing the former by the latter shows that International Consolidated Airlines has an exceptional trailing twelve month dividend cover of 4.43.
This is a positive sign for shareholders of International Consolidated Airlines, as it means that the dividend is very comfortably covered by the company's current earnings, and could even mean that the company has the scope to increase its dividend in the future. Other checks you can perform to assess dividend safety include:
- Making sure dividend per share is covered by free cash flow per share
- Assessing balance sheet health by looking at the group’s gearing ratio
Income investing: what you need to know
For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.
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