ClearView Wealth Limited's (ASX:CVW) dividend will be increasing from last year's payment of the same period to A$0.02 on 23rd of September. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.
ClearView Wealth Is Paying Out More Than It Is Earning
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Before making this announcement, ClearView Wealth's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Looking forward, EPS could fall by 5.4% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 116%, which could put the dividend in jeopardy if the company's earnings don't improve.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from A$0.018 total annually to A$0.02. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Is Doubtful
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. ClearView Wealth has seen earnings per share falling at 5.4% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
ClearView Wealth's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think ClearView Wealth will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think ClearView Wealth is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, ClearView Wealth has 2 warning signs (and 1 which is potentially serious) we think you should know about. 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.
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