The board of CI Financial Corp. (TSE:CIX) has announced that it will pay a dividend on the 13th of January, with investors receiving CA$0.18 per share. This makes the dividend yield 5.8%, which will augment investor returns quite nicely.
Our analysis indicates that CIX is potentially undervalued!
CI Financial's Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, CI Financial was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 29.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CA$0.90 in 2012, and the most recent fiscal year payment was CA$0.72. The dividend has shrunk at around 2.2% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
CI Financial May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings has been rising at 4.5% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, CI Financial has the option to increase the payout ratio to return more cash to shareholders.
In Summary
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, CI Financial has 2 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
About TSX:CIX
Fair value with moderate growth potential.
