The advice of COG Financial Services Limited (ASX: COG) announced that it will increase its dividend on October 22 to AU $ 0.06. This will bring the annual payout from 5.1% to 8.5% of the share price, which is higher than what most companies in the industry pay.
See our latest analysis for COG Financial Services
COG Financial Services may struggle to maintain dividend
If the payments are not sustainable, a high return for a few years will not matter much. While COG Financial Services is not profitable, it pays less than 75% of its free cash flow, which means there is a lot left to reinvest in the business. We generally think cash flow is more important than accounting measures of profit, so we’re pretty comfortable with the dividend at this level.
Over the next year EPS could drop 79.1% based on recent performance. This means that the company will not make a profit over the next year or so, but with healthy cash flow at the moment, the dividend could still be maintained.
COG Financial Services does not have a long payment history
It is difficult to judge the stability of a dividend when the company has not paid one for a very long time. This doesn’t mean the company can’t pay a good dividend, just that we want to wait until it can prove itself.
The potential for dividend growth is fragile
Investors might be attracted to the stock depending on the quality of its payment history. However, things are not that rosy. Over the past five years, it appears that COG Financial Services’ EPS has declined by around 79% per year. Such rapid declines certainly have the potential to restrict dividend payments if the trend continues in the future.
COG Financial Services dividend does not appear sustainable
In summary, while it’s always good to see the dividend increase, we don’t think COG Financial Services’ payouts are strong. The company generates a lot of cash, which could hold the dividend for a while, but the track record is not great. We would be a little cautious if we were relying on this security primarily for dividend income.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those suffering from a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. As an example, we have met 3 warning signs for COG Financial Services you must be aware of this, and one of them must not be ignored. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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