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Readers hoping to buy Computer Modelling Group Ltd. (TSE:CMG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Computer Modelling Group's shares on or after the 6th of March, you won't be eligible to receive the dividend, when it is paid on the 14th of March.
The company's next dividend payment will be CA$0.05 per share, and in the last 12 months, the company paid a total of CA$0.20 per share. Calculating the last year's worth of payments shows that Computer Modelling Group has a trailing yield of 2.5% on the current share price of CA$8.11. If you buy this business for its dividend, you should have an idea of whether Computer Modelling Group's dividend is reliable and sustainable. As a result, readers should always check whether Computer Modelling Group has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Computer Modelling Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Computer Modelling Group paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Computer Modelling Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Computer Modelling Group's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.