The board of COG Financial Services Limited (ASX:COG) has announced that it will be increasing its dividend on the 22nd of October to AU$0.06. This will take the annual payment from 5.1% to 8.5% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for COG Financial Services
COG Financial Services Might Find It Hard To Continue The Dividend
If the payments aren't sustainable, a high yield for a few years won't matter that much. While COG Financial Services is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
Over the next year, EPS might fall by 79.1% based on recent performance. This means that the company won't turn a profit over the next year, but with healthy cash flows at the moment the dividend could still be okay to continue.
COG Financial Services Doesn't Have A Long Payment History
It is tough to make a judgement on how stable a dividend is when the company hasn't been paying one for very long. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though COG Financial Services' EPS has declined at around 79% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
COG Financial Services' Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think COG Financial Services' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for COG Financial Services you should be aware of, and 1 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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