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IG Group Holdings plc (LON:IGG) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 7.2%, and has a market cap of UK£2.2b. Does IG Group Holdings tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

View our latest analysis for IG Group Holdings

5 questions I ask before picking a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

How does IG Group Holdings fare?

The current trailing twelve-month payout ratio for the stock is 81%, which means that the dividend is covered by earnings. Going forward, analysts expect IGG’s payout to remain around the same level at 81% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 7.2%. In addition to this, EPS is forecasted to fall to £0.50 in the upcoming year.

If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of IGG it has increased its DPS from £0.13 to £0.43 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes IGG a true dividend rockstar.

In terms of its peers, IG Group Holdings has a yield of 7.2%, which is high for Capital Markets stocks.

Next Steps:

Keeping in mind the dividend characteristics above, IG Group Holdings is definitely worth considering for investors looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three key factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for IGG’s future growth? Take a look at our free research report of analyst consensus for IGG’s outlook.

2. Valuation: What is IGG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IGG is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.