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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Citigroup Inc. (NYSE:C) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 29th of January, you won't be eligible to receive this dividend, when it is paid on the 26th of February.
Citigroup's next dividend payment will be US$0.51 per share, and in the last 12 months, the company paid a total of US$2.04 per share. Calculating the last year's worth of payments shows that Citigroup has a trailing yield of 3.3% on the current share price of $61.33. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Fortunately Citigroup's payout ratio is modest, at just 42% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Citigroup's earnings per share have been shrinking at 2.0% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Citigroup has lifted its dividend by approximately 48% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Citigroup? Citigroup's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We think there are likely better opportunities out there.
So if you want to do more digging on Citigroup, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 2 warning signs for Citigroup you should know about.
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.
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