City of London Investment Group (LON:CLIG) Is Paying Out 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. This makes the dividend yield 8.5%, which will augment investor returns quite nicely.

View 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. Prior to this announcement, the company was paying out 109% of what it was earning and 78% of cash flows. 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. 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 an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.24 total annually to £0.33. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, City of London Investment Group's earnings per share has shrunk at approximately 5.1% per annum. 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

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about City of London Investment Group's payments, as there could be some issues with sustaining them into the future. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for City of London Investment Group you should be aware of, and 1 of them is potentially serious. Is City of London Investment Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.