Capital Appreciation (JSE:CTA) Is Paying Out A Larger Dividend Than Last Year

Capital Appreciation Limited's (JSE:CTA) dividend will be increasing from last year's payment of the same period to ZAR0.0425 on 28th of December. Despite this raise, the dividend yield of 6.0% is only a modest boost to shareholder returns.

View our latest analysis for Capital Appreciation

Capital Appreciation Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. The last payment made up 89% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Over the next year, EPS could expand by 12.4% if the company continues along the path it has been on recently. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 96% over the next year.

Capital Appreciation Doesn't Have A Long Payment History

Capital Appreciation's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the dividend has gone from ZAR0.04 total annually to ZAR0.085. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Capital Appreciation has grown earnings per share at 12% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Capital Appreciation's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Capital Appreciation is a great stock to add to your portfolio if income is your focus.

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. For instance, we've picked out 3 warning signs for Capital Appreciation that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.