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Readers hoping to buy Centrepoint Alliance Limited (ASX:CAF) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 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. Accordingly, Centrepoint Alliance investors that purchase the stock on or after the 28th of October will not receive the dividend, which will be paid on the 10th of November.
The company's next dividend payment will be AU$0.01 per share, on the back of last year when the company paid a total of AU$0.02 to shareholders. Last year's total dividend payments show that Centrepoint Alliance has a trailing yield of 7.3% on the current share price of A$0.275. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Centrepoint Alliance distributed an unsustainably high 156% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Centrepoint Alliance's 8.1% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Centrepoint Alliance's dividend payments per share have declined at 1.4% per year on average over the past seven years, which is uninspiring.
To Sum It Up
Should investors buy Centrepoint Alliance for the upcoming dividend? Earnings per share are in decline and Centrepoint Alliance 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. Centrepoint Alliance doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the 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 Centrepoint Alliance. Our analysis shows 4 warning signs for Centrepoint Alliance that we strongly recommend you have a look at before investing in the company.
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.
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