Stock Analysis

Cogent Communications Holdings (NASDAQ:CCOI) Will Pay A Larger Dividend Than Last Year At $0.905

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NasdaqGS:CCOI
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Cogent Communications Holdings, Inc. (NASDAQ:CCOI) will increase its dividend from last year's comparable payment on the 31st of August to $0.905. The payment will take the dividend yield to 6.1%, which is in line with the average for the industry.

See our latest analysis for Cogent Communications Holdings

Cogent Communications Holdings Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Earnings per share is forecast to rise by 51.7% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

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NasdaqGS:CCOI Historic Dividend August 9th 2022

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.40 in 2012 to the most recent total annual payment of $3.62. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Cogent Communications Holdings Might Find It Hard To Grow Its Dividend

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 22% per year over the past five years. While EPS is growing rapidly, Cogent Communications Holdings paid out a very high 356% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Cogent Communications Holdings' Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Cogent Communications Holdings (of which 3 are potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

What are the risks and opportunities for 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.

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Rewards

  • Earnings are forecast to grow 31.84% per year

Risks

  • Interest payments are not well covered by earnings

  • Negative shareholders equity

  • Significant insider selling over the past 3 months

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