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Credit Corp Group Limited's (ASX:CCP) investors are due to receive a payment of A$0.23 per share on 27th of September. This payment takes the dividend yield to 2.4%, which only provides a modest boost to overall returns.
See our latest analysis for Credit Corp Group
Credit Corp Group's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Credit Corp Group's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 120.6%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was A$0.37, compared to the most recent full-year payment of A$0.38. Its dividends have grown at less than 1% per annum over this time frame. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 12% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
Credit Corp Group's Dividend Doesn't Look Sustainable
Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. While Credit Corp Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. For example, we've identified 2 warning signs for Credit Corp Group (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.