Yahoo Finance Don't Race Out To Buy ComfortDelGro Corporation Limited (SGX:C52) Just Because It's Going Ex-Dividend
It looks like ComfortDelGro Corporation Limited (SGX:C52) is about to go ex-dividend in the next 3 days. Investors can purchase shares before the 1st of June in order to be eligible for this dividend, which will be paid on the 9th of June.
ComfortDelGro's next dividend payment will be S$0.053 per share. Last year, in total, the company distributed S$0.098 to shareholders. Based on the last year's worth of payments, ComfortDelGro has a trailing yield of 6.5% on the current stock price of SGD1.5. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether ComfortDelGro has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for ComfortDelGro
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether ComfortDelGro generated enough free cash flow to afford its dividend. Over the past year it paid out 161% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
ComfortDelGro paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were ComfortDelGro to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about ComfortDelGro's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, ComfortDelGro has lifted its dividend by approximately 6.9% a year on average.
To Sum It Up
Should investors buy ComfortDelGro for the upcoming dividend? Earnings per share have not grown and ComfortDelGro's profit payout ratio looks reasonable. However, it paid out a disconcertingly high percentage of its cashflow, which is a worry. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
With that in mind though, if the poor dividend characteristics of ComfortDelGro don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for ComfortDelGro you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.
