Readers hoping to buy Countryside Properties PLC (LON:CSP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 19th of December, you won't be eligible to receive this dividend, when it is paid on the 7th of February.
Countryside Properties's upcoming dividend is UK£0.10 a share, following on from the last 12 months, when the company distributed a total of UK£0.16 per share to shareholders. Based on the last year's worth of payments, Countryside Properties stock has a trailing yield of around 3.5% on the current share price of £4.688. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Countryside Properties
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. Fortunately Countryside Properties's payout ratio is modest, at just 43% of profit. A useful secondary check can be to evaluate whether Countryside Properties generated enough free cash flow to afford its dividend. Over the past year it paid out 126% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
While Countryside Properties's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Countryside Properties to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Countryside Properties has grown its earnings rapidly, up 116% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.