City of London Investment Group (LON:CLIG) Has Announced A Dividend Of £0.11

The board of City of London Investment Group Plc (LON:CLIG) has announced that it will pay a dividend of £0.11 per share on the 28th of March. This makes the dividend yield 9.6%, which will augment investor returns quite nicely.

View our latest analysis for City of London Investment Group

City of London Investment Group's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the dividend made up 86% 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.

Over the next year, EPS is forecast to expand by 38.2%. If the dividend continues along recent trends, we estimate the payout ratio could reach 82%, which is on the higher side, but certainly still feasible.

City of London Investment Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was £0.24 in 2014, 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. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

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, initial appearances might be deceiving. City of London Investment Group has seen earnings per share falling at 5.2% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

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. As an example, we've identified 1 warning sign for City of London Investment Group that you should be aware of before investing. Is City of London Investment Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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