City of London Investment Group (LON:CLIG) Has Affirmed Its Dividend Of £0.22

City of London Investment Group PLC (LON:CLIG) has announced that it will pay a dividend of £0.22 per share on the 4th of November. Based on this payment, the dividend yield on the company's stock will be 8.1%, which is an attractive boost to shareholder returns.

View our latest analysis for City of London Investment Group

City of London Investment Group Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, City of London Investment Group was paying out 77% of earnings, but a comparatively small 60% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to fall by 18.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 141%, which could put the dividend in jeopardy if the company's earnings don't improve.

City of London Investment Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was £0.24, compared to the most recent full-year payment of £0.33. This means that it has been growing its distributions at 3.2% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

We Could See City of London Investment Group's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. City of London Investment Group has seen EPS rising for the last five years, at 7.1% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On City of London Investment Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for City of London Investment 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.