Don't Buy Clime Investment Management Limited (ASX:CIW) For Its Next Dividend Without Doing These Checks

Simply Wall St
·4 min read

Readers hoping to buy Clime Investment Management Limited (ASX:CIW) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 17th of September to receive the dividend, which will be paid on the 2nd of October.

Clime Investment Management's upcoming dividend is AU$0.01 a share, following on from the last 12 months, when the company distributed a total of AU$0.02 per share to shareholders. Based on the last year's worth of payments, Clime Investment Management stock has a trailing yield of around 3.3% on the current share price of A$0.6. If you buy this business for its dividend, you should have an idea of whether Clime Investment Management's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Clime Investment Management

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. An unusually high payout ratio of 278% of its profit suggests something is happening other than the usual distribution of profits to shareholders.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

Click here to see how much of its profit Clime Investment Management paid out over the last 12 months.

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historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Clime Investment Management's earnings per share have plummeted approximately 36% a year over the previous five years.

Clime Investment Management also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Clime Investment Management's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Is Clime Investment Management an attractive dividend stock, or better left on the shelf? Not only are earnings per share shrinking, but Clime Investment Management is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. Clime Investment Management doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in Clime Investment Management and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 6 warning signs for Clime Investment Management (1 is concerning!) that deserve your attention before investing in the shares.

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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