The board of Capital Appreciation Limited (JSE:CTA) has announced that it will pay a dividend on the 8th of January, with investors receiving ZAR0.0425 per share. This means the annual payment is 7.2% of the current stock price, which is above the average for the industry.
Capital Appreciation Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Looking forward, EPS could fall by 4.9% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 141%, which is definitely a bit high to be sustainable going forward.
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 annual payment back then was ZAR0.04, compared to the most recent full-year payment of ZAR0.0825. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. 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.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Capital Appreciation's earnings per share has shrunk at approximately 4.9% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
We're Not Big Fans Of Capital Appreciation's Dividend
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Capital Appreciation make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Capital Appreciation (of which 2 don't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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