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Computer Modelling Group Ltd.'s (TSE:CMG) investors are due to receive a payment of CA$0.05 per share on 15th of June. This makes the dividend yield 4.0%, which will augment investor returns quite nicely.
Computer Modelling Group's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Computer Modelling Group was paying out 87% of earnings, but a comparatively small 57% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
The next year is set to see EPS grow by 17.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from CA$0.26 in 2012 to the most recent annual payment of CA$0.20. Doing the maths, this is a decline of about 2.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Is Doubtful
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Computer Modelling Group's earnings per share has fallen at approximately 5.7% per year over the past 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
Our Thoughts On Computer Modelling Group's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Computer Modelling Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.
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. As an example, we've identified 1 warning sign for Computer Modelling Group that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.