Do These 3 Checks Before Buying Cott Corporation (TSE:BCB) For Its Upcoming Dividend

Cott Corporation (TSE:BCB) stock is about to trade ex-dividend in 4 days time. Ex-dividend means that investors that purchase the stock on or after the 20th of August will not receive this dividend, which will be paid on the 4th of September.

Cott’s upcoming dividend is US$0.06 a share, following on from the last 12 months, when the company distributed a total of US$0.24 per share to shareholders. Last year’s total dividend payments show that Cott has a trailing yield of 2.0% on the current share price of CA$16.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Cott has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Cott

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Cott reported a loss last year, so it’s not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Cott didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

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

TSX:BCB Historical Dividend Yield, August 15th 2019
TSX:BCB Historical Dividend Yield, August 15th 2019

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Cott was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Cott’s dividend payments are broadly unchanged compared to where they were seven years ago.

Get our latest analysis on Cott’s balance sheet health here.

The Bottom Line

Is Cott an attractive dividend stock, or better left on the shelf? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It’s not that we think Cott is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

Ever wonder what the future holds for Cott? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.