City of London Investment Group Plc (LON:CLIG) has announced that it will pay a dividend of £0.11 per share on the 28th of March. Based on this payment, the dividend yield on the company’s stock will be 9.6%, which is an attractive boost to shareholder returns.
Check out our latest analysis for City of London Investment Group
City of London Investment Group’s Earnings Easily Cover The Distributions
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 109% of what it was earning and 86% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
Over the next year, EPS is forecast to expand by 38.2%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 82% which is a bit high but can definitely be sustainable.
City of London Investment Group Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was £0.24 in 2014, and the most recent fiscal year payment was £0.33. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth May Be Hard To Come By
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, things aren’t all that rosy. City of London Investment Group has seen earnings per share falling at 5.2% per year over the last five years. A modest decline in earnings isn’t great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
City of London Investment Group’s Dividend Doesn’t Look Sustainable
Overall, it’s nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we’ve identified 1 warning sign for City of London Investment Group that investors need to be conscious of moving forward. Is City of London Investment Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
