Dividend Investors: Don't Be Too Quick To Buy Corby Spirit and Wine Limited (TSE:CSW.A) For Its Upcoming Dividend
Corby Spirit and Wine Limited (TSE:CSW.A) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Corby Spirit and Wine investors that purchase the stock on or after the 19th of May will not receive the dividend, which will be paid on the 6th of June.
The company's next dividend payment will be CA$0.21 per share, on the back of last year when the company paid a total of CA$0.94 to shareholders. Last year's total dividend payments show that Corby Spirit and Wine has a trailing yield of 6.1% on the current share price of CA$15.31. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Corby Spirit and Wine
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Corby Spirit and Wine paying out a modest 29% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 99% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Corby Spirit and Wine paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Corby Spirit and Wine's ability to maintain its dividend.
Click here to see how much of its profit Corby Spirit and Wine paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Corby Spirit and Wine's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Corby Spirit and Wine has delivered an average of 4.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Is Corby Spirit and Wine an attractive dividend stock, or better left on the shelf? It's disappointing to see earnings per share have fallen slightly, even though Corby Spirit and Wine is paying out less than half its income as dividends. It's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in Corby Spirit and Wine and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Corby Spirit and Wine is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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