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Don't Buy CSP Inc. (NASDAQ:CSPI) For Its Next Dividend Without Doing These Checks

Simply Wall St

CSP Inc. (NASDAQ:CSPI) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 13th of September.

CSP's next dividend payment will be US$0.15 per share. Last year, in total, the company distributed US$0.60 to shareholders. Last year's total dividend payments show that CSP has a trailing yield of 4.5% on the current share price of $13.41. If you buy this business for its dividend, you should have an idea of whether CSP's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for CSP

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CSP's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If CSP didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term.

Click here to see how much of its profit CSP paid out over the last 12 months.

NasdaqGM:CSPI Historical Dividend Yield, August 25th 2019

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. CSP was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CSP has delivered an average of 25% per year annual increase in its dividend, based on the past 8 years of dividend payments.

We update our analysis on CSP every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is CSP an attractive dividend stock, or better left on the shelf? It's hard to get used to CSP paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of CSP.

Want to learn more about CSP? Here's a visualisation of its historical rate of revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.