Compass Diversified (NYSE:CODI) Is Due To Pay A Dividend Of $0.25

The board of Compass Diversified (NYSE:CODI) has announced that it will pay a dividend on the 25th of April, with investors receiving $0.25 per share. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

View our latest analysis for Compass Diversified

Compass Diversified's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Compass Diversified isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This makes us feel that the dividend will be hard to maintain.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 7.1%, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $1.44, compared to the most recent full-year payment of $1.00. The dividend has shrunk at around 3.6% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Compass Diversified has impressed us by growing EPS at 18% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. Assuming the company can post positive net income numbers soon, it could has the potential to be a decent dividend payer.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. Strong earnings growth means Compass Diversified has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Compass Diversified is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Compass Diversified (of which 1 is a bit unpleasant!) 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.