Cohort plc (LON:CHRT) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 22nd of August will not receive the dividend, which will be paid on the 18th of September.
Cohort's next dividend payment will be UK£0.063 per share, on the back of last year when the company paid a total of UK£0.091 to shareholders. Based on the last year's worth of payments, Cohort has a trailing yield of 2.0% on the current stock price of £4.475. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Cohort paid out more than half (68%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Cohort generated enough free cash flow to afford its dividend. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about Cohort's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Cohort has lifted its dividend by approximately 18% a year on average.
The Bottom Line
Is Cohort worth buying for its dividend? Cohort has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. Bottom line: Cohort has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for Cohort? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.