City of London Investment Group's (LON:CLIG) Dividend Will Be £0.11

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. Based on this payment, the dividend yield on the company's stock will be 9.7%, 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

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 86% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

The next 12 months is set to see EPS grow by 14.5%. If the dividend continues on its recent course, the payout ratio in 12 months could be 99%, 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. Since 2014, the annual payment back then was £0.24, compared to the most recent full-year payment of £0.33. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though City of London Investment Group's EPS has declined at around 5.2% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for City of London Investment Group you should be aware of, and 1 of them can't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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