Credit Suisse Group AG (VTX:CSGN) will pay a dividend of CHF0.10 on the 11th of May. This payment means the dividend yield will be 1.5%, 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. 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.
Looking forward, earnings per share could rise by 23.4% over the next year if the trend from the last few years continues. It's nice to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
Although the company has a long dividend history, it has been cut at least once 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. This works out to a decline of approximately 92% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
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. It's encouraging to see Credit Suisse Group has been growing its earnings per share at 23% a year over the past five years. 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.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Credit Suisse Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.