Yahoo Finance Don't Race Out To Buy CI Resources Limited (ASX:CII) Just Because It's Going Ex-Dividend
CI Resources Limited (ASX:CII) is about to trade ex-dividend in the next four 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 because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, CI Resources investors that purchase the stock on or after the 24th of March will not receive the dividend, which will be paid on the 22nd of April.
The company's upcoming dividend is AU$0.02 a share, following on from the last 12 months, when the company distributed a total of AU$0.02 per share to shareholders. Last year's total dividend payments show that CI Resources has a trailing yield of 1.9% on the current share price of A$1.06. 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.
Check out our latest analysis for CI Resources
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CI Resources paid out a comfortable 47% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend.
Click here to see how much of its profit CI Resources paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. CI Resources's earnings per share have fallen at approximately 27% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the CI Resources dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
The Bottom Line
Has CI Resources got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though CI Resources is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not that we think CI Resources is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
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 CI Resources. For example, we've found 2 warning signs for CI Resources (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
