Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Corus Entertainment Inc. (TSE:CJR.B) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 13th of March, you won't be eligible to receive this dividend, when it is paid on the 31st of March.
Corus Entertainment's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.24 per share to shareholders. Looking at the last 12 months of distributions, Corus Entertainment has a trailing yield of approximately 5.8% on its current stock price of CA$4.17. 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 Corus Entertainment has been able to grow its dividends, or if the dividend might be cut.
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. Fortunately Corus Entertainment's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Corus Entertainment generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 16% of its cash flow last year.
It's positive to see that Corus Entertainment's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Corus Entertainment's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Corus Entertainment has seen its dividend decline 8.8% per annum on average over the past ten years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
The Bottom Line
Is Corus Entertainment worth buying for its dividend? Corus Entertainment has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
On that note, you'll want to research what risks Corus Entertainment is facing. In terms of investment risks, we've identified 4 warning signs with Corus Entertainment and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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