Yahoo Finance Dividend Investors: Don't Be Too Quick To Buy City of London Investment Group PLC (LON:CLIG) For Its Upcoming Dividend
City of London Investment Group PLC (LON:CLIG) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase City of London Investment Group's shares before the 2nd of March to receive the dividend, which will be paid on the 31st of March.
The company's next dividend payment will be UK£0.11 per share, and in the last 12 months, the company paid a total of UK£0.33 per share. Last year's total dividend payments show that City of London Investment Group has a trailing yield of 7.2% on the current share price of £4.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether City of London Investment Group can afford its dividend, and if the dividend could grow.
View our latest analysis for City of London Investment Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year City of London Investment Group paid out 109% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that City of London Investment Group's earnings are down 3.8% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, City of London Investment Group has lifted its dividend by approximately 3.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. City of London Investment Group is already paying out 109% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
To Sum It Up
Is City of London Investment Group an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and City of London Investment Group is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with City of London Investment Group. Be aware that City of London Investment Group is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
