Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CMC Markets Plc (LON:CMCX) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 6th of August in order to be eligible for this dividend, which will be paid on the 11th of September.
CMC Markets's upcoming dividend is UK£0.12 a share, following on from the last 12 months, when the company distributed a total of UK£0.15 per share to shareholders. Last year's total dividend payments show that CMC Markets has a trailing yield of 4.7% on the current share price of £3.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether CMC Markets has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately CMC Markets's payout ratio is modest, at just 50% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see CMC Markets's earnings per share have risen 19% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. CMC Markets has delivered an average of 8.8% per year annual increase in its dividend, based on the past four years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is CMC Markets worth buying for its dividend? Companies like CMC Markets that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating CMC Markets more closely.
In light of that, while CMC Markets has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with CMC Markets (at least 1 which can't be ignored), and understanding these 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. 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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