The board of Admiral Group plc (LON:ADM) has announced that it will be paying its dividend of £1.21 on the 13th of June, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 5.9%, which is in line with the average for the industry.

We've discovered 2 warning signs about Admiral Group. View them for free.

Admiral Group's Payment Could Potentially Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last payment was quite easily covered by earnings, but it made up 189% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

EPS is set to grow by 21.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 77%, which is on the higher side, but certainly still feasible.LSE:ADM Historic Dividend May 6th 2025

Check out our latest analysis for Admiral Group

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was £1.00, compared to the most recent full-year payment of £1.92. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Admiral Group's Dividend Growing

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. Admiral Group has seen EPS rising for the last five years, at 8.7% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Admiral Group (of which 1 doesn't sit too well with us!) you should know about. Is Admiral Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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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