It’s slightly odd to think of IG Group (LSE: IGG), a company that aims to be the “the default choice for active traders”, as a great income stock, but that’s arguably what it has become in recent years.
The financial spread-betting firm celebrates its 40th birthday in November, and has seen its shares rise some 500% since re-joining the market in 2005. Its dividend increase since 2005 is almost as impressive, with a gain of over 400%.
Sales stalling?
Although IG Group has an excellent long-term record of sales and profit growth, the former has certainly stalled in recent years. This year revenue growth was just 2.4%, while pre-tax profits increased a measly 1.3% to £195m.
However, due to its financial strength, IG Group has boosted its dividend payout ratio from 60% to 70%, and this is why it is able to increase its full-year dividend by 21% to 28.15p.
Markets becalmed
The lack of volatility in financial markets might be good for our nerves, but it makes things a little tougher for the likes of IG Group, whose clients tend to trade more when prices are yo-yoing.
According to the company “this May saw 25-year lows in forex volatility and came close to 25-year lows in equity volatility, and these conditions have continued into the early part of the 2015 financial year.”
The complexity of the regulatory situation, particularly across Europe, can also hold back the company’s progress. The introduction of a financial transactions tax could provide another hurdle, although IG Group now expects this to be less onerous than originally feared.
The next phase of growth
IG Group is looking to Switzerland and Dubai as its next two markets, but seems particularly excited by the upcoming launch of its UK stockbroking service. IG says it “will offer clients the ability to use their share portfolio as collateral to support their trading with CFDs or spread betting”, before then moving on to target the wider share dealing market.
IG Group shares responded very well to today’s confident set of results, with a gain of 7% to 615p in early trading. At this level they trade on a historic P/E of 15 times and yield a tasty 4.6%. They are also within touching distance of the all-time high of around 650p set a few months ago.
