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Don't Race Out To Buy Corby Spirit and Wine Limited (TSE:CSW.A) Just Because It's Going Ex-Dividend

Simply Wall St

Readers hoping to buy Corby Spirit and Wine Limited (TSE:CSW.A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 25th of February, you won't be eligible to receive this dividend, when it is paid on the 6th of March.

Corby Spirit and Wine's next dividend payment will be CA$0.22 per share, on the back of last year when the company paid a total of CA$0.88 to shareholders. Based on the last year's worth of payments, Corby Spirit and Wine has a trailing yield of 5.1% on the current stock price of CA$17.33. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Corby Spirit and Wine paid out 94% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (89%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's good to see that while Corby Spirit and Wine's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see how much of its profit Corby Spirit and Wine paid out over the last 12 months.

TSX:CSW.A Historical Dividend Yield, February 20th 2020

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 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 Corby Spirit and Wine'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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Corby Spirit and Wine has delivered an average of 4.6% per year annual increase in its dividend, based on the past ten years of dividend payments.

The Bottom Line

Has Corby Spirit and Wine got what it takes to maintain its dividend payments? Flat earnings per share and a high payout ratio are not what we like to see, although at least it paid out a lower percentage of its free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Corby Spirit and Wine.

Keen to explore more data on Corby Spirit and Wine's financial performance? Check out our visualisation of its historical revenue and earnings growth.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 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.

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. Thank you for reading.