It Might Not Be A Great Idea To Buy C-Com Satellite Systems Inc. (CVE:CMI) For Its Next Dividend
C-Com Satellite Systems Inc. (CVE:CMI) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase C-Com Satellite Systems' shares before the 4th of February in order to be eligible for the dividend, which will be paid on the 23rd of February.
The company's next dividend payment will be CA$0.013 per share. Last year, in total, the company distributed CA$0.05 to shareholders. Looking at the last 12 months of distributions, C-Com Satellite Systems has a trailing yield of approximately 2.2% on its current stock price of CA$2.27. If you buy this business for its dividend, you should have an idea of whether C-Com Satellite Systems's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for C-Com Satellite Systems
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. C-Com Satellite Systems distributed an unsustainably high 138% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 83% 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 disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and C-Com Satellite Systems fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see how much of its profit C-Com Satellite Systems paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that C-Com Satellite Systems's earnings are down 4.4% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. C-Com Satellite Systems has delivered an average of 5.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. C-Com Satellite Systems is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
The Bottom Line
Has C-Com Satellite Systems got what it takes to maintain its dividend payments? It's never fun to see a company's earnings per share in retreat. Additionally, C-Com Satellite Systems is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not that we think C-Com Satellite Systems is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that in mind though, if the poor dividend characteristics of C-Com Satellite Systems don't faze you, it's worth being mindful of the risks involved with this business. For example, we've found 4 warning signs for C-Com Satellite Systems that we recommend you consider before investing in the business.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
