CMC Markets (LON:CMCX) Could Be A Buy For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that CMC Markets plc (LON:CMCX) is about to go ex-dividend in just three days. You will need to purchase shares before the 26th of November to receive the dividend, which will be paid on the 18th of December.

CMC Markets's next dividend payment will be UK£0.092 per share, on the back of last year when the company paid a total of UK£0.15 to shareholders. Last year's total dividend payments show that CMC Markets has a trailing yield of 3.7% on the current share price of £4.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether CMC Markets has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for CMC Markets

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. Fortunately CMC Markets's payout ratio is modest, at just 36% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see CMC Markets's earnings have been skyrocketing, up 36% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CMC Markets has delivered an average of 8.8% per year annual increase in its dividend, based on the past four years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy CMC Markets for the upcoming dividend? Companies like CMC Markets that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating CMC Markets more closely.

On that note, you'll want to research what risks CMC Markets is facing. For example, we've found 2 warning signs for CMC Markets (1 makes us a bit uncomfortable!) that deserve your attention before investing in the shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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