The board of FDM Group (Holdings) plc (LON:FDM) has announced that it will pay a dividend on the 28th of June, with investors receiving ￡0.19 per share. This means the annual payment is 8.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for FDM Group (Holdings)

FDM Group (Holdings) Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 96% of what it was earning and 79% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Looking forward, earnings per share is forecast to fall by 34.0% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 161%, which is definitely a bit high to be sustainable going forward.

FDM Group (Holdings)'s Dividend Has Lacked Consistency

FDM Group (Holdings) has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was ￡0.15, compared to the most recent full-year payment of ￡0.36. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

FDM Group (Holdings) May Find It Hard To Grow The Dividend

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. Unfortunately, FDM Group (Holdings)'s earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The earnings growth is anaemic, and the company is paying out 96% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.