Do These 3 Checks Before Buying Calian Group Ltd. (TSE:CGY) For Its Upcoming Dividend

By
Simply Wall St
Published
February 17, 2022
TSX:CGY
Source: Shutterstock

Calian Group Ltd. (TSE:CGY) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Calian Group's shares before the 22nd of February in order to be eligible for the dividend, which will be paid on the 9th of March.

The company's next dividend payment will be CA$0.28 per share. Last year, in total, the company distributed CA$1.12 to shareholders. Based on the last year's worth of payments, Calian Group stock has a trailing yield of around 2.0% on the current share price of CA$57.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Calian Group can afford its dividend, and if the dividend could grow.

View our latest analysis for Calian Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year Calian Group paid out 95% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Fortunately, it paid out only 39% of its free cash flow in the past year.

It's good to see that while Calian Group's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

historic-dividend
TSX:CGY Historic Dividend February 17th 2022

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Calian Group's earnings per share have dropped 9.0% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Calian Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. 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. Calian Group has delivered 1.1% dividend growth per year on average over the past 10 years.

To Sum It Up

Has Calian Group got what it takes to maintain its dividend payments? It's not a great combination to see a company with earnings in decline and paying out 95% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Calian Group's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. Bottom line: Calian Group has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering Calian Group as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 4 warning signs for Calian Group you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.