Why It Might Not Make Sense To Buy Close Brothers Group plc (LON:CBG) For Its Upcoming Dividend

By
Simply Wall St
Published
March 20, 2021
LSE:CBG
Source: Shutterstock

It looks like Close Brothers Group plc (LON:CBG) is about to go ex-dividend in the next three days. You will need to purchase shares before the 25th of March to receive the dividend, which will be paid on the 28th of April.

Close Brothers Group's next dividend payment will be UK£0.18 per share. Last year, in total, the company distributed UK£0.36 to shareholders. Last year's total dividend payments show that Close Brothers Group has a trailing yield of 2.2% on the current share price of £16.09. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Close Brothers Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Close Brothers Group

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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
LSE:CBG Historic Dividend March 21st 2021

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Close Brothers Group's 9.1% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Close Brothers Group has seen its dividend decline 0.8% per annum on average over the past 10 years, which is not great to see.

Final Takeaway

Should investors buy Close Brothers Group for the upcoming dividend? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Close Brothers Group doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that being said, if you're still considering Close Brothers Group as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Close Brothers Group that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020


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