Can royal mail afford it's dividend

Royal Mail, the UK's postal service, has been paying dividends to its shareholders since its initial public offering (IPO) in 2013. However, there have been concerns about the sustainability of these dividends, particularly in recent years.

In 2020, Royal Mail's dividend payout ratio was around 70%, which means that the company paid out approximately 70% of its underlying earnings as dividends. This is relatively high compared to other companies in the same sector.

There are several reasons why Royal Mail's dividend sustainability has been questioned:

  1. Declining mail volumes: Royal Mail's core mail business has been declining due to the shift to digital communication, which has reduced the volume of mail being sent.
  2. Competition from parcel delivery companies: The rise of parcel delivery companies like Amazon, DHL, and UPS has increased competition for Royal Mail's parcel delivery business.
  3. Regulatory pressures: Royal Mail is subject to regulatory pressures, including price caps on its services and requirements to maintain a certain level of service quality.
  4. Investment in digital transformation: Royal Mail is investing heavily in digital transformation, including the development of its Parcelforce and Royal Mail Tracking services, which requires significant capital expenditure.

In 2020, Royal Mail's underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) were £1.3 billion. The company paid out £923 million in dividends, which represents a dividend payout ratio of around 71%.

While Royal Mail has maintained its dividend payments, there are concerns that the company may need to reduce its dividend payout ratio in the future to ensure its long-term financial sustainability. In its 2020 annual report, Royal Mail stated that it would "continue to review its dividend policy in light of its financial performance and the needs of its business."

In summary, while Royal Mail has been paying dividends, there are concerns about the sustainability of these dividends due to declining mail volumes, competition, regulatory pressures, and investment in digital transformation. The company may need to adjust its dividend policy in the future to ensure its long-term financial health.