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It Might Be Better To Avoid Corby Spirit and Wine Limited's (TSE:CSW.A) Upcoming 1.3% Dividend

Simply Wall St

Corby Spirit and Wine Limited (TSE:CSW.A) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 10th of September in order to be eligible for this dividend, which will be paid on the 27th of September.

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. Last year's total dividend payments show that Corby Spirit and Wine has a trailing yield of 5.0% on the current share price of CA$17.55. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Corby Spirit and Wine can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Corby Spirit and Wine

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Corby Spirit and Wine paid out 98% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Corby Spirit and Wine generated enough free cash flow to afford its dividend. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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 this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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, September 5th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Corby Spirit and Wine's earnings are effectively flat 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. In the past 10 years, Corby Spirit and Wine has increased its dividend at approximately 4.6% a year on average.

The Bottom Line

Should investors buy Corby Spirit and Wine for the upcoming dividend? 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. It's not that we think Corby Spirit and Wine is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

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