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Readers hoping to buy City of London Investment Group PLC (LON:CLIG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 8th of October to receive the dividend, which will be paid on the 30th of October.
City of London Investment Group's next dividend payment will be UK£0.20 per share, on the back of last year when the company paid a total of UK£0.30 to shareholders. Based on the last year's worth of payments, City of London Investment Group stock has a trailing yield of around 7.0% on the current share price of £4.29. 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.
Check out our latest analysis for City of London Investment Group
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. City of London Investment Group paid out 99% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
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. 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 encouraged by the steady growth at City of London Investment Group, with earnings per share up 2.8% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, City of London Investment Group has lifted its dividend by approximately 3.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is City of London Investment Group worth buying for its dividend? City of London Investment Group has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.