Cogeco Communications (TSE:CCA) Is Paying Out A Larger Dividend Than Last Year

Cogeco Communications Inc.'s (TSE:CCA) periodic dividend will be increasing on the 29th of November to CA$0.854, with investors receiving 10% more than last year's CA$0.776. This takes the dividend yield to 5.6%, which shareholders will be pleased with.

See our latest analysis for Cogeco Communications

Cogeco Communications' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Cogeco Communications was paying a whopping 137% as a dividend, but this only made up 35% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to fall by 7.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 43%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Cogeco Communications Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was CA$1.04, compared to the most recent full-year payment of CA$3.1. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings has been rising at 3.1% per annum over the last five years, which admittedly is a bit slow. While EPS growth is quite low, Cogeco Communications has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Cogeco Communications' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

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. Just as an example, we've come across 3 warning signs for Cogeco Communications you should be aware of, and 2 of them don't sit too well with us. 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.