Don't Buy Centuria Capital Group (ASX:CNI) For Its Next Dividend Without Doing These Checks

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Centuria Capital Group (ASX:CNI) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 29th of June will not receive the dividend, which will be paid on the 8th of July.

Centuria Capital Group's upcoming dividend is AU$0.052 a share, following on from the last 12 months, when the company distributed a total of AU$0.095 per share to shareholders. Last year's total dividend payments show that Centuria Capital Group has a trailing yield of 5.3% on the current share price of A$1.845. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Centuria Capital Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Centuria Capital Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Centuria Capital Group paid out 188% 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.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Centuria Capital Group's earnings per share have fallen at approximately 15% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

We'd also point out that Centuria Capital Group issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, Centuria Capital Group has lifted its dividend by approximately 6.9% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Centuria Capital Group is already paying out 188% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

From a dividend perspective, should investors buy or avoid Centuria Capital Group? Earnings per share are in decline and Centuria Capital Group 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. Centuria Capital Group 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 Centuria Capital Group. For example, Centuria Capital Group has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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