Corby Spirit and Wine's (TSE:CSW.A) Dividend Will Be Increased To CA$0.23

The board of Corby Spirit and Wine Limited (TSE:CSW.A) has announced that it will be paying its dividend of CA$0.23 on the 12th of March, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 6.0%, providing a nice boost to shareholder returns.

See our latest analysis for Corby Spirit and Wine

Corby Spirit and Wine's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Corby Spirit and Wine was paying out 94% of earnings, but a comparatively small 59% of free cash flows. This leaves plenty of cash for reinvestment into the business.

EPS is set to fall by 0.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 97%, which could put the dividend under pressure if earnings don't start to improve.

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$0.72 in 2015, and the most recent fiscal year payment was CA$0.88. This means that it has been growing its distributions at 2.0% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Corby Spirit and Wine's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Corby Spirit and Wine has 3 warning signs (and 1 which is a bit unpleasant) 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.