Stock Analysis

We Wouldn't Be Too Quick To Buy Clime Investment Management Limited (ASX:CIW) Before It Goes Ex-Dividend

ASX:CIW
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Clime Investment Management Limited (ASX:CIW) stock is about to trade ex-dividend in two days. This means that investors who purchase shares on or after the 1st of March will not receive the dividend, which will be paid on the 12th of March.

Clime Investment Management's next dividend payment will be AU$0.01 per share. Last year, in total, the company distributed AU$0.02 to shareholders. Based on the last year's worth of payments, Clime Investment Management has a trailing yield of 3.6% on the current stock price of A$0.56. If you buy this business for its dividend, you should have an idea of whether Clime Investment Management's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Clime Investment Management

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Clime Investment Management paid out a disturbingly high 308% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.

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 how much of its profit Clime Investment Management paid out over the last 12 months.

historic-dividend
ASX:CIW Historic Dividend February 26th 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Clime Investment Management's earnings per share have plummeted approximately 38% a year over the previous five years.

We'd also point out that Clime Investment Management 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Clime Investment Management's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. 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.

To Sum It Up

From a dividend perspective, should investors buy or avoid Clime Investment Management? Not only are earnings per share shrinking, but Clime Investment Management is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that in mind though, if the poor dividend characteristics of Clime Investment Management don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 6 warning signs for Clime Investment Management (1 doesn't sit too well with us) you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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