Don't Buy City of London Investment Group PLC (LON:CLIG) For Its Next Dividend Without Doing These Checks

City of London Investment Group PLC (LON:CLIG) is about to trade ex-dividend in the next four days. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 19th of March.

City of London Investment Group's next dividend payment will be UK£0.11 per share, on the back of last year when the company paid a total of UK£0.30 to shareholders. Calculating the last year's worth of payments shows that City of London Investment Group has a trailing yield of 6.0% on the current share price of £4.96. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for City of London Investment Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year City of London Investment Group paid out 105% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-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. This is why it's a relief to see City of London Investment Group earnings per share are up 2.2% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, City of London Investment Group has increased its dividend at approximately 3.2% 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.

Final Takeaway

Is City of London Investment Group worth buying for its dividend? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 105% of last year's earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Although, if you're still interested in City of London Investment Group and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 4 warning signs for City of London Investment Group (1 is significant!) that you ought to be aware of before buying the shares.

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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