The board of City of London Investment Group PLC (LON:CLIG) has announced that it will pay a dividend on the 4th of November, with investors receiving £0.22 per share. This makes the dividend yield 8.4%, which will augment investor returns quite nicely.

View our latest analysis for City of London Investment Group

City of London Investment Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment made up 77% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to fall by 3.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 119%, which could put the dividend in jeopardy if the company's earnings don't improve.

City of London Investment Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from £0.24 total annually to £0.33. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

City of London Investment Group Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. City of London Investment Group has impressed us by growing EPS at 7.1% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Our Thoughts On City of London Investment Group's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think City of London Investment Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for City of London Investment Group that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.