Yahoo Finance Why It Might Not Make Sense To Buy Corby Spirit and Wine Limited (TSE:CSW.A) For Its Upcoming Dividend
Corby Spirit and Wine Limited (TSE:CSW.A) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. In other words, investors can purchase Corby Spirit and Wine's shares before the 29th of May in order to be eligible for the dividend, which will be paid on the 12th of June.
The company's next dividend payment will be CA$0.21 per share, on the back of last year when the company paid a total of CA$0.84 to shareholders. Looking at the last 12 months of distributions, Corby Spirit and Wine has a trailing yield of approximately 6.4% on its current stock price of CA$13.16. If you buy this business for its dividend, you should have an idea of whether Corby Spirit and Wine's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Corby Spirit and Wine
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Corby Spirit and Wine paid out 115% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's good to see that while Corby Spirit and Wine's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see how much of its profit Corby Spirit and Wine paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Corby Spirit and Wine's earnings per share have been shrinking at 4.2% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Corby Spirit and Wine has seen its dividend decline 3.7% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Has Corby Spirit and Wine got what it takes to maintain its dividend payments? Earnings per share have been shrinking in recent times. What's more, Corby Spirit and Wine is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Corby Spirit and Wine.
Although, if you're still interested in Corby Spirit and Wine and want to know more, you'll find it very useful to know what risks this stock faces. We've identified 4 warning signs with Corby Spirit and Wine (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.
