Colonial Motor (NZSE:CMO) Has Re-Affirmed Its Dividend Of NZ$0.18

By
Simply Wall St
Published
February 20, 2022
NZSE:CMO
Source: Shutterstock

The Colonial Motor Company Limited's (NZSE:CMO) investors are due to receive a payment of NZ$0.18 per share on 28th of March. The dividend yield will be 6.0% based on this payment which is still above the industry average.

See our latest analysis for Colonial Motor

Colonial Motor's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Colonial Motor's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 7.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 68% by next year, which we think can be pretty sustainable going forward.

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NZSE:CMO Historic Dividend February 20th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the dividend has gone from NZ$0.16 to NZ$0.55. This means that it has been growing its distributions at 13% per annum over that time. Colonial Motor has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

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. Colonial Motor has seen EPS rising for the last five years, at 7.6% per annum. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Colonial Motor's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Colonial Motor that investors need to be conscious of moving forward. Is Colonial Motor not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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