We Wouldn't Be Too Quick To Buy CIMIC Group Limited (ASX:CIM) Before It Goes Ex-Dividend

CIMIC Group Limited (ASX:CIM) stock is about to trade ex-dividend in 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase CIMIC Group's shares before the 11th of June in order to be eligible for the dividend, which will be paid on the 5th of July.

The company's next dividend payment will be AU$0.60 per share, and in the last 12 months, the company paid a total of AU$1.20 per share. Based on the last year's worth of payments, CIMIC Group stock has a trailing yield of around 5.5% on the current share price of A$21.64. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for CIMIC Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CIMIC Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. CIMIC Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CIMIC Group has seen its dividend decline 2.2% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on CIMIC Group every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid CIMIC Group? All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

So if you're still interested in CIMIC Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 2 warning signs for CIMIC Group (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.

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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