Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that The Caldwell Partners International Inc. (TSE:CWL) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 20th of January will not receive the dividend, which will be paid on the 16th of March.
Caldwell Partners International's next dividend payment will be CA$0.022 per share. Last year, in total, the company distributed CA$0.09 to shareholders. Looking at the last 12 months of distributions, Caldwell Partners International has a trailing yield of approximately 6.9% on its current stock price of CA$1.3. If you buy this business for its dividend, you should have an idea of whether Caldwell Partners International's dividend is reliable and sustainable. So we need to investigate whether Caldwell Partners International can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. An unusually high payout ratio of 319% of its profit suggests something is happening other than the usual distribution of profits to shareholders. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 71% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Caldwell Partners International's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Caldwell Partners International's earnings per share have fallen at approximately 22% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Caldwell Partners International has lifted its dividend by approximately 5.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Caldwell Partners International is already paying out 319% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Has Caldwell Partners International got what it takes to maintain its dividend payments? It's never fun to see a company's earnings per share in retreat. Additionally, Caldwell Partners International is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Keen to explore more data on Caldwell Partners International's financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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