Carlton Investments Limited’s (ASX:CIN) dividend will be increasing from last year’s payment of the same period to A$0.58 on 19th of September. Despite this raise, the dividend yield of 2.6% is only a modest boost to shareholder returns.
Carlton Investments’ Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite comfortably covered by Carlton Investments’ earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 78% indicates it is more focused on returning cash to shareholders than growing the business.
If the company can’t turn things around, EPS could fall by 3.2% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 75%, meaning that most of the company’s earnings is being paid out to shareholders.
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of A$0.78 in 2012 to the most recent total annual payment of A$0.84. Dividend payments have grown at less than 1% a year over this period. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.
The Dividend’s Growth Prospects Are Limited
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s not great to see that Carlton Investments’ earnings per share has fallen at approximately 3.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Carlton Investments has been making. Overall, we don’t think this company has the makings of 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve identified 2 warning signs for Carlton Investments (1 can’t be ignored!) that you should be aware of before investing. 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.
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