City of London Investment Group (LON:CLIG) Is Due To Pay A Dividend Of £0.22

City of London Investment Group Plc (LON:CLIG) will pay a dividend of £0.22 on the 27th of October. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.

See our latest analysis for City of London Investment Group

City of London Investment Group Is Paying Out More Than It Is Earning

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 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.

Over the next year, EPS is forecast to fall by 5.8%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 120%, which is definitely a bit high to be sustainable going forward.

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 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. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. City of London Investment Group has seen earnings per share falling at 5.1% 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.

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

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. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, City of London Investment Group has 2 warning signs (and 1 which can't be ignored) we think you should know about. 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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