Computer Modelling Group (TSE:CMG) Is Due To Pay A Dividend Of CA$0.05

The board of Computer Modelling Group Ltd. (TSE:CMG) has announced that it will pay a dividend of CA$0.05 per share on the 14th of June. This makes the dividend yield 1.6%, which will augment investor returns quite nicely.

See our latest analysis for Computer Modelling Group

Computer Modelling 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, Computer Modelling Group's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 13.9%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

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Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was CA$0.385, compared to the most recent full-year payment of CA$0.20. This works out to be a decline of approximately 6.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been crawling upwards at 3.2% per year. The company has been growing at a pretty soft 3.2% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, a consistent dividend is a good thing, and we think that Computer Modelling Group has the ability to continue this into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Computer Modelling Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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