FTSE 250 financial company IG Group (LSE: IGG) released its half-year results today (25 January).
For me, the eye-catching item in the report is the director’s decision to raise the interim dividend by 2% compared to the prior year’s equivalent period.
However, IG also posted lower revenue and profit and, as I type, the share price is down by almost 9% since the stock market opened.
Short-term setback?
But this could be an opportunity for investors to run a calculator over the business.
IG provides spread betting and other trading platforms. It often scores its biggest earnings when markets are volatile. That’s when people tend to use the firm’s offering for shorter-term trading strategies.
But the directors said the performance of the business in the half-year to 30 November 2023 reflected softer market conditions. Furthermore, the outcome is measured against a strong comparative period a year ago, suggesting markets were wilder back then.
So, how bad is it? Well, we are talking about a decline in total revenue of 9% and a fall in adjusted basic earnings per share of almost 22% — ouch!
Nevertheless, I’m encouraged by the directors’ decision to carry on the company’s record of steady dividends. Here’s what it looks like:
| Year to May | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024(e) | 2025(e) |
| Dividend per share | 43.2p | 43.2p | 43.2p | 43.2p | 44.2p | 45.2p | 46.1p | 47.4p |
| Dividend growth | 33.7% | 0 | 0 | 0 | 2.31% | 2.26% | 2.07% | 2.8% |
Although the pace of dividend growth has been pedestrian, there are no cuts in there. I think the directors’ decisions about dividends can be a good indicator of the underlying health of a business. In this case, I’m reading: steady as she goes.
Meanwhile, with the share price near 715p, the forward-looking yield for 2025 is about 6.6%. I see that as a decent level of income from what has been a consistent dividend payer.
Low earnings visibility
Of course, there’s no guarantee IG will keep performing well with dividends into the future. One of the main risks for me is that it’s hard to see under the hood to appreciate what’s going on in the business. On top of that, the sector can be competitive and IG could lose clients going forward.
Nevertheless, I like the strong-looking balance sheet with its net cash position. On top of that, new chief executive Breon Corcoran is due to start 29 January 2024. Change at the top often helps businesses to grow if the new post-holder brings to the table new ideas, vision, and energy.
Acting chief executive Charlie Rozes is optimistic and said IG’s diversification strategy is paying off. The company’s exposure to a wider range of revenue drivers will “underpin further growth”, Rozes said.
Overall, the directors are “confident and optimistic” about the outlook. Meanwhile, an ongoing share repurchase programme appears to add weight to their conviction.
Despite the weakness in the stock today, I reckon IG is worth careful research and appraisal now. Perhaps some of the shares could make a worthwhile longer-term hold within a diversified and balanced portfolio.
