Dividend Investors: Don't Be Too Quick To Buy City of London Investment Group PLC (LON:CLIG) For Its Upcoming Dividend

By
Simply Wall St
Published
February 27, 2021
LSE:CLIG

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see City of London Investment Group PLC (LON:CLIG) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 4th of March, you won't be eligible to receive this dividend, when it is paid on the 19th of March.

City of London Investment Group's next dividend payment will be UK£0.11 per share, and in the last 12 months, the company paid a total of UK£0.30 per share. Looking at the last 12 months of distributions, City of London Investment Group has a trailing yield of approximately 6.0% on its current stock price of £4.96. If you buy this business for its dividend, you should have an idea of whether City of London Investment Group's dividend is reliable and sustainable. So we need to investigate whether City of London Investment Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for City of London Investment Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, City of London Investment Group paid out 105% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
LSE:CLIG Historic Dividend February 27th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at City of London Investment Group, with earnings per share up 2.2% on average over the last five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, City of London Investment Group has lifted its dividend by approximately 3.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is City of London Investment Group worth buying for its dividend? City of London Investment Group has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that being said, if you're still considering City of London Investment Group as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that City of London Investment Group is showing 4 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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