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Don't Race Out To Buy Compass Diversified (NYSE:CODI) Just Because It's Going Ex-Dividend

Simply Wall St
·3 min read

Compass Diversified (NYSE:CODI) stock is about to trade ex-dividend in 4 days. You can purchase shares before the 14th of January in order to receive the dividend, which the company will pay on the 22nd of January.

Compass Diversified's next dividend payment will be US$0.36 per share, on the back of last year when the company paid a total of US$1.44 to shareholders. Based on the last year's worth of payments, Compass Diversified has a trailing yield of 6.9% on the current stock price of $20.75. 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.

Check out our latest analysis for Compass Diversified

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. Compass Diversified lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Compass Diversified reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Compass Diversified also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Compass Diversified has increased its dividend at approximately 0.6% a year on average.

Get our latest analysis on Compass Diversified's balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Compass Diversified? It's definitely not great to see that it paid a dividend despite reporting a loss last year. Worse, the general trend in its earnings looks negative in recent times. Compass Diversified doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in Compass Diversified despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 3 warning signs for Compass Diversified that we strongly recommend you have a look at before investing in the company.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.