Stock Analysis

Cogent Communications Holdings (NASDAQ:CCOI) Has Announced That It Will Be Increasing Its Dividend To US$0.81

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NasdaqGS:CCOI
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Cogent Communications Holdings, Inc. (NASDAQ:CCOI) will increase its dividend on the 3rd of September to US$0.81. This takes the annual payment to 3.9% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Cogent Communications Holdings

Cogent Communications Holdings Doesn't Earn Enough To Cover Its Payments

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to grow rapidly. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 346%, which is unsustainable.

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NasdaqGS:CCOI Historic Dividend August 8th 2021

Cogent Communications Holdings' Dividend Has Lacked Consistency

It's comforting to see that Cogent Communications Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The first annual payment during the last 9 years was US$0.40 in 2012, and the most recent fiscal year payment was US$3.22. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth Potential Is Shaky

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Cogent Communications Holdings' earnings per share has shrunk at 19% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Cogent Communications Holdings' Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 6 warning signs for Cogent Communications Holdings you should be aware of, and 3 of them are a bit concerning. We have also put together a list of global stocks with a solid dividend.

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About NasdaqGS:CCOI

Cogent Communications Holdings

Cogent Communications Holdings, Inc., through its subsidiaries, provides high-speed Internet access, private network, and data center colocation space services in North America, Europe, Asia, South America, Australia, and Africa.

Moderate growth potential second-rate dividend payer.