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 Citigroup Inc. (NYSE:C) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 31st of January, you won’t be eligible to receive this dividend, when it is paid on the 28th of February.
Citigroup’s next dividend payment will be US$0.51 per share, on the back of last year when the company paid a total of US$2.04 to shareholders. Last year’s total dividend payments show that Citigroup has a trailing yield of 2.6% on the current share price of $78.42. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Citigroup has a low and conservative payout ratio of just 24% of its income after tax.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Citigroup has grown its earnings rapidly, up 30% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Citigroup has delivered an average of 55% per year annual increase in its dividend, based on the past nine years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Citigroup worth buying for its dividend? Companies like Citigroup that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term – as long as it’s done without issuing too many new shares. Overall, Citigroup looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Ever wonder what the future holds for Citigroup? See what the 22 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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