Corus Entertainment Inc. (TSE:CJR.B) has announced that it will pay a dividend of CA$0.06 per share on the 30th of June. This makes the dividend yield 3.9%, which will augment investor returns quite nicely.
Corus Entertainment's Distributions May Be Difficult To Sustain
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Corus Entertainment is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Looking forward, earnings per share could 42.3% over the next year if the trend of the last few years can't be broken. This means that the company will be unprofitable, but cash flows are more important when considering the dividend and as the current cash payout ratio is pretty healthy, we don't think there is too much reason to worry.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was CA$0.60, compared to the most recent full-year payment of CA$0.24. Doing the maths, this is a decline of about 8.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Corus Entertainment's EPS has fallen by approximately 42% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Corus Entertainment's Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Corus Entertainment's payments, as there could be some issues with sustaining them into the future. 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.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Corus Entertainment has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. We have also put together a list of global stocks with a solid dividend.
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