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Readers hoping to buy Credit Corp Group Limited (ASX:CCP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase Credit Corp Group's shares before the 30th of August in order to be eligible for the dividend, which will be paid on the 10th of September.
The company's next dividend payment will be AU$0.36 per share. Last year, in total, the company distributed AU$0.72 to shareholders. Based on the last year's worth of payments, Credit Corp Group stock has a trailing yield of around 2.3% on the current share price of A$31.92. 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 from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Credit Corp Group paid out 55% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Credit Corp Group, with earnings per share up 5.9% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Credit Corp Group has lifted its dividend by approximately 14% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Credit Corp Group worth buying for its dividend? Credit Corp Group has been generating some growth in earnings per share while paying out more than half of its earnings to shareholders in the form of dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
With that being said, if dividends aren't your biggest concern with Credit Corp Group, you should know about the other risks facing this business. Our analysis shows 1 warning sign for Credit Corp Group and you should be aware of this before buying any shares.
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.
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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