Dividend paying stocks like Corus Entertainment Inc. (TSE:CJR.B) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
A high yield and a long history of paying dividends is an appealing combination for Corus Entertainment. We'd guess that plenty of investors have purchased it for the income. During the year, the company also conducted a buyback equivalent to around 1.9% of its market capitalisation. Remember though, due to the recent spike in its share price, Corus Entertainment's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, Corus Entertainment currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
Corus Entertainment's cash payout ratio last year was 17%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.
We update our data on Corus Entertainment every 24 hours, so you can always get our latest analysis of its financial health, here.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of Corus Entertainment's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was CA$0.6 in 2011, compared to CA$0.2 last year. This works out to be a decline of approximately 8.8% per year over that time. Corus Entertainment's dividend has been cut sharply at least once, so it hasn't fallen by 8.8% every year, but this is a decent approximation of the long term change.
We struggle to make a case for buying Corus Entertainment for its dividend, given that payments have shrunk over the past 10 years.
Dividend Growth Potential
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Corus Entertainment's earnings per share have shrunk at 34% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Corus Entertainment's earnings per share, which support the dividend, have been anything but stable.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're not keen on the fact that Corus Entertainment paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. Overall, Corus Entertainment falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 3 warning signs (and 1 which is potentially serious) we think you should know about.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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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. 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.
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