Do These 3 Checks Before Buying Compass Diversified (NYSE:CODI) For Its Upcoming Dividend
It looks like Compass Diversified (NYSE:CODI) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Compass Diversified investors that purchase the stock on or after the 30th of August will not receive the dividend, which will be paid on the 7th of September.
The company's upcoming dividend is US$0.88 a share, following on from the last 12 months, when the company distributed a total of US$1.44 per share to shareholders. Based on the last year's worth of payments, Compass Diversified stock has a trailing yield of around 5.0% on the current share price of $28.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Compass Diversified
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. Compass Diversified reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Compass Diversified reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Compass Diversified has delivered 0.6% dividend growth per year on average over the past 10 years.
We update our analysis on Compass Diversified every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is Compass Diversified an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you're still interested in Compass Diversified despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Compass Diversified (at least 1 which is concerning), and understanding them should be part of your investment process.
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.
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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