Don't Buy C-Com Satellite Systems Inc. (CVE:CMI) For Its Next Dividend Without Doing These Checks

C-Com Satellite Systems Inc. (CVE:CMI) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, C-Com Satellite Systems investors that purchase the stock on or after the 30th of April will not receive the dividend, which will be paid on the 15th of May.

The company's upcoming dividend is CA$0.0125 a share, following on from the last 12 months, when the company distributed a total of CA$0.05 per share to shareholders. Based on the last year's worth of payments, C-Com Satellite Systems has a trailing yield of 4.1% on the current stock price of CA$1.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether C-Com Satellite Systems has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for C-Com Satellite Systems

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year C-Com Satellite Systems paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 193% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

C-Com Satellite Systems does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Cash is slightly more important than profit from a dividend perspective, but given C-Com Satellite Systems's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit C-Com Satellite Systems paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see C-Com Satellite Systems's earnings per share have been shrinking at 3.1% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, C-Com Satellite Systems has lifted its dividend by approximately 2.3% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. C-Com Satellite Systems is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

From a dividend perspective, should investors buy or avoid C-Com Satellite Systems? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (94%) and cash flow as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of C-Com Satellite Systems.

With that being said, if you're still considering C-Com Satellite Systems as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for C-Com Satellite Systems (2 don't sit too well with us!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.