City of London Investment Group (LON:CLIG) Has Announced A Dividend Of £0.22

The board of City of London Investment Group Plc (LON:CLIG) has announced that it will pay a dividend of £0.22 per share on the 27th of October. Based on this payment, the dividend yield on the company's stock will be 8.5%, which is an attractive boost to shareholder returns.

Check out our latest analysis for City of London Investment Group

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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 78% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Looking forward, earnings per share is forecast to fall by 6.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 120%, which could put the dividend under pressure if earnings don't start to improve.

City of London Investment Group Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was £0.24 in 2013, and the most recent fiscal year payment was £0.33. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. It's not great to see that City of London Investment Group's earnings per share has fallen at approximately 5.1% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

City of London Investment Group's Dividend Doesn't Look Sustainable

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 stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

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. To that end, City of London Investment Group has 3 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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