Stock Analysis

Cogent Communications Holdings (NASDAQ:CCOI) Has Announced That It Will Be Increasing Its Dividend To US$0.83

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The board of Cogent Communications Holdings, Inc. (NASDAQ:CCOI) has announced that it will be increasing its dividend on the 3rd of December to US$0.83. This takes the annual payment to 4.2% 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 Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 113.9% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

NasdaqGS:CCOI Historic Dividend November 7th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from US$0.40 in 2011 to the most recent annual payment of US$3.22. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. 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 Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Cogent Communications Holdings has impressed us by growing EPS at 10% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Cogent Communications Holdings' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Cogent Communications Holdings' payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Cogent Communications Holdings you should be aware of, and 3 of them are a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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