Yahoo Finance Four Days Left Until Codan Limited (ASX:CDA) Trades Ex-Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Codan Limited (ASX:CDA) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Codan's shares on or after the 23rd of February will not receive the dividend, which will be paid on the 10th of March.
The company's upcoming dividend is AU$0.09 a share, following on from the last 12 months, when the company distributed a total of AU$0.28 per share to shareholders. Based on the last year's worth of payments, Codan stock has a trailing yield of around 5.0% on the current share price of A$5.63. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Codan can afford its dividend, and if the dividend could grow.
See our latest analysis for Codan
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Codan paid out more than half (53%) of its earnings last year, which is a regular payout ratio for most companies. 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. Codan paid out more free cash flow than it generated - 122%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Codan paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Codan's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Codan's earnings per share have risen 13% per annum over the last five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Codan has lifted its dividend by approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Codan an attractive dividend stock, or better left on the shelf? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 122% of its cashflow, which is uncomfortably high. To summarise, Codan looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you're not too concerned about Codan's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Our analysis shows 1 warning sign for Codan and you should be aware of it before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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.
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