City of London Investment Group (LON:CLIG) Is Increasing Its Dividend To UK£0.24

The board of City of London Investment Group PLC (LON:CLIG) has announced that it will be increasing its dividend by 123% on the 25th of March to UK£0.24. This will take the annual payment from 6.6% to 9.3% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for City of London Investment Group

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

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 84% of earnings, but a comparatively small 70% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 2.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 138%, which is a bit high and could start applying pressure to the balance sheet.

City of London Investment Group Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was UK£0.24 in 2012, and the most recent fiscal year payment was UK£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 could be attracted to the stock based on the quality of its payment history. It's encouraging to see City of London Investment Group has been growing its earnings per share at 8.3% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

Our Thoughts On City of London Investment Group's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payments look pretty sustainable with good earnings coverage and a reasonable track record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. See if management have their own wealth at stake, by checking insider shareholdings in City of London Investment Group stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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.