- Oops!Something went wrong.Please try again later.
It looks like The Colonial Motor Company Limited (NZSE:CMO) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Colonial Motor's shares before the 23rd of September in order to be eligible for the dividend, which will be paid on the 4th of October.
The company's upcoming dividend is NZ$0.47 a share, following on from the last 12 months, when the company distributed a total of NZ$0.55 per share to shareholders. Calculating the last year's worth of payments shows that Colonial Motor has a trailing yield of 5.3% on the current share price of NZ$10.47. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Colonial Motor paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Colonial Motor generated enough free cash flow to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Colonial Motor's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Colonial Motor earnings per share are up 3.0% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Colonial Motor has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is Colonial Motor worth buying for its dividend? Earnings per share have been growing modestly and Colonial Motor paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Colonial Motor from a dividend perspective.
However if you're still interested in Colonial Motor as a potential investment, you should definitely consider some of the risks involved with Colonial Motor. To help with this, we've discovered 1 warning sign for Colonial Motor that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.