Corby Spirit and Wine (TSE:CSW.A) Is Reducing Its Dividend To CA$0.21

The board of Corby Spirit and Wine Limited (TSE:CSW.A) has announced it will be reducing its dividend by 13% from last year's payment of CA$0.24 on the 3rd of March, with shareholders receiving CA$0.21. The dividend yield of 5.9% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Corby Spirit and Wine

Corby Spirit and Wine Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 110% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS could expand by 0.2% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 110%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CA$0.60 in 2013 to the most recent total annual payment of CA$0.94. This implies that the company grew its distributions at a yearly rate of about 4.6% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Corby Spirit and Wine May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Corby Spirit and Wine's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

Corby Spirit and Wine's Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Corby Spirit and Wine that investors need to be conscious of moving forward. Is Corby Spirit and Wine not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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