Is It Worth Considering The Character Group plc (LON:CCT) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Character Group plc (LON:CCT) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 14th of January, you won't be eligible to receive this dividend, when it is paid on the 29th of January.

Character Group's next dividend payment will be UK£0.03 per share, on the back of last year when the company paid a total of UK£0.04 to shareholders. Based on the last year's worth of payments, Character Group stock has a trailing yield of around 1.2% on the current share price of £4.25. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Character Group

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Character Group's payout ratio is modest, at just 34% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Character Group's earnings per share have dropped 21% a year over 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. Character Group has delivered an average of 2.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Should investors buy Character Group for the upcoming dividend? Character Group has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. To summarise, Character Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 4 warning signs for Character Group (of which 1 is concerning!) you should know about.

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.

When trading Character Group or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.