City of London Investment Group (LON:CLIG) Is Paying Out A 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 8.5%, which is an attractive boost to shareholder returns.

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. Prior to this announcement, City of London Investment Group's dividend made up quite a large proportion of earnings but only 60% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to fall by 18.7%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 141%, which is definitely a bit high to be sustainable going forward.

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 2012, and the most recent fiscal year payment was £0.33. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Has Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that City of London Investment Group has been growing its earnings per share at 7.1% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On City of London Investment Group's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

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. For example, we've identified 2 warning signs for City of London Investment Group (1 makes us a bit uncomfortable!) 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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