The board of Credit Suisse Group AG (VTX:CSGN) has announced that it will pay a dividend of CHF0.10 per share on the 11th of May. This payment means the dividend yield will be 1.4%, which is below the average for the industry.
Credit Suisse Group's Distributions May Be Difficult To Sustain
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Credit Suisse Group is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Assuming the trend of the last few years continues, EPS will grow by 39.9% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was CHF1.30, compared to the most recent full-year payment of CHF0.10. The dividend has fallen 92% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Company Could Face Some Challenges Growing The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Credit Suisse Group has impressed us by growing EPS at 40% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Credit Suisse Group that investors should know about before committing capital to this stock. Is Credit Suisse Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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Credit Suisse Group
Credit Suisse Group AG, together with its subsidiaries, provides various financial services in Switzerland, Europe, the Middle East, Africa, the Americas, and Asia Pacific.
Flawless balance sheet with reasonable growth potential.