Colonial Motor (NZSE:CMO) Has Announced A Dividend Of NZ$0.1765

The Colonial Motor Company Limited (NZSE:CMO) has announced that it will pay a dividend of NZ$0.1765 per share on the 31st of March. Including this payment, the dividend yield on the stock will be 5.3%, which is a modest boost for shareholders' returns.

View our latest analysis for Colonial Motor

Colonial Motor's Future Dividends May Potentially Be At Risk

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

If the company can't turn things around, EPS could fall by 35.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 985%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The last annual payment of NZ$0.35 was flat on the annual payment from10 years ago. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Colonial Motor's EPS has declined at around 35% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Colonial Motor's Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help Colonial Motor make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Colonial Motor has 4 warning signs (and 3 which are concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.