The board of Credit Suisse Group AG (VTX:CSGN) has announced that it will pay a dividend of CHF0.10 per share on the 5th of May. This payment means the dividend yield will be 1.2%, which is below the average for the industry.
Credit Suisse Group's Distributions May Be Difficult To Sustain
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Even though Credit Suisse Group isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Over the next year, EPS could expand by 40.1% if recent trends continue. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the first annual payment was CHF1.30, compared to the most recent full-year payment of CHF0.10. This works out to a decline of approximately 92% over that time. 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
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Credit Suisse Group has seen EPS rising for the last five years, at 40% per annum. The company hasn't been turning a profit, but it running in the right direction. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.
Our Thoughts On Credit Suisse Group's Dividend
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 don't think Credit Suisse Group is a great stock to add to your portfolio if income is your focus.
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 Credit Suisse Group that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.