Computer Modelling Group (TSE:CMG) Is Due To Pay A Dividend Of CA$0.05

The board of Computer Modelling Group Ltd. (TSE:CMG) has announced that it will pay a dividend of CA$0.05 per share on the 14th of June. Based on this payment, the dividend yield on the company's stock will be 1.6%, which is an attractive boost to shareholder returns.

See our latest analysis for Computer Modelling Group

Computer Modelling Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Computer Modelling Group's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 13.9%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

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$0.385 in 2014, and the most recent fiscal year payment was CA$0.20. This works out to be a decline of approximately 6.3% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Computer Modelling Group May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been crawling upwards at 3.2% per year. Growth of 3.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

In Summary

Overall, we think Computer Modelling Group is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Computer Modelling Group that investors should know about before committing capital to this stock. Is Computer Modelling Group not quite the opportunity you were looking for? Why not check out our selection of top 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.