Why It Might Not Make Sense To Buy Corus Entertainment Inc. (TSE:CJR.B) For Its Upcoming Dividend
Corus Entertainment Inc. (TSE:CJR.B) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 31st of March.
Corus Entertainment's next dividend payment will be CA$0.06 per share. Last year, in total, the company distributed CA$0.24 to shareholders. Based on the last year's worth of payments, Corus Entertainment stock has a trailing yield of around 4.3% on the current share price of CA$5.61. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Corus Entertainment has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Corus Entertainment
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. Corus Entertainment reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Corus Entertainment didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 17% of its free cash flow in the last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Corus Entertainment 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.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Corus Entertainment's dividend payments per share have declined at 8.8% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Get our latest analysis on Corus Entertainment's balance sheet health here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Corus Entertainment? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Corus Entertainment is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in Corus Entertainment despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 3 warning signs for Corus Entertainment (of which 1 shouldn't be ignored!) you should know about.
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.
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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