Compass Diversified (NYSE:CODI) Has Announced A Dividend Of $0.25

The board of Compass Diversified (NYSE:CODI) has announced that it will pay a dividend on the 24th of October, with investors receiving $0.25 per share. The dividend yield will be 4.6% based on this payment which is still above the industry average.

Check out our latest analysis for Compass Diversified

Compass Diversified's Long-term Dividend Outlook appears Promising

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even though Compass Diversified is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Looking forward, earnings per share is forecast to rise by 175.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 55% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $1.44 in 2014, and the most recent fiscal year payment was $1.00. The dividend has shrunk at around 3.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Compass Diversified May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Compass Diversified's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

We're Not Big Fans Of Compass Diversified's Dividend

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Compass Diversified (2 shouldn't be ignored!) that you should be aware of before investing. Is Compass Diversified not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.