Capital Appreciation (JSE:CTA) Will Pay A Dividend Of ZAR0.0425

The board of Capital Appreciation Limited (JSE:CTA) has announced that it will pay a dividend of ZAR0.0425 per share on the 8th of January. This makes the dividend yield 7.2%, which will augment investor returns quite nicely.

View our latest analysis for Capital Appreciation

Capital Appreciation Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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.

If the company can't turn things around, EPS could fall by 4.9% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 141%, which is definitely a bit high to be sustainable going forward.

Capital Appreciation Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. Since 2017, the annual payment back then was ZAR0.04, compared to the most recent full-year payment of ZAR0.0825. This means that it has been growing its distributions at 13% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Capital Appreciation May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Capital Appreciation's earnings per share has shrunk at approximately 4.9% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Capital Appreciation's Dividend Doesn't Look Great

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. 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. Overall, the dividend is not reliable enough to make this a good 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Capital Appreciation (of which 2 are a bit concerning!) 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.

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