Stock Analysis

Computer Modelling Group (TSE:CMG) Has Announced A Dividend Of CA$0.05

TSX:CMG
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Computer Modelling Group Ltd.'s (TSE:CMG) investors are due to receive a payment of CA$0.05 per share on 15th of September. This makes the dividend yield 5.2%, which will augment investor returns quite nicely.

Check out our latest analysis for Computer Modelling Group

Computer Modelling Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last dividend made up a very large portion of earnings and also represented 78% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to fall by 20.6% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 93%, meaning that most of the company's earnings are being paid out to shareholders.

historic-dividend
TSX:CMG Historic Dividend August 14th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from CA$0.24 to CA$0.20. This works out to be a decline of approximately 1.9% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Computer Modelling Group's earnings per share has fallen at approximately 4.3% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Computer Modelling Group's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Computer Modelling Group has 4 warning signs (and 1 which is concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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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.
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