Capital Appreciation (JSE:CTA) Has Announced A Dividend Of ZAR0.045

The board of Capital Appreciation Limited (JSE:CTA) has announced that it will pay a dividend of ZAR0.045 per share on the 6th of January. This means the dividend yield will be fairly typical at 4.8%.

See our latest analysis for Capital Appreciation

Capital Appreciation's Projected Earnings Seem Likely To Cover Future Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Capital Appreciation's dividend was only 65% of earnings, however it was paying out 186% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS could expand by 10.4% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 81% which is a bit high but can definitely be sustainable.

Capital Appreciation Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2017, the dividend has gone from ZAR0.04 total annually to ZAR0.0825. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Capital Appreciation has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Capital Appreciation has grown earnings per share at 10% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Capital Appreciation's payments, as there could be some issues with sustaining them into the future. While Capital Appreciation is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Capital Appreciation that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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