Don't Buy The Colonial Motor Company Limited (NZSE:CMO) For Its Next Dividend Without Doing These Checks
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Colonial Motor Company Limited (NZSE:CMO) is about to trade ex-dividend in the next 4 days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Colonial Motor's shares before the 24th of September in order to receive the dividend, which the company will pay on the 5th of October.
The company's next dividend payment will be NZ$0.2941176 per share, and in the last 12 months, the company paid a total of NZ$0.40 per share. Based on the last year's worth of payments, Colonial Motor stock has a trailing yield of around 5.7% on the current share price of NZ$7.03. If you buy this business for its dividend, you should have an idea of whether Colonial Motor's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Colonial Motor paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies.
View our latest analysis for Colonial Motor
Click here to see how much of its profit Colonial Motor paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Colonial Motor's earnings per share have been shrinking at 4.4% a year over the previous 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, Colonial Motor has lifted its dividend by approximately 1.9% a year on average.
Final Takeaway
Is Colonial Motor an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Colonial Motor's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
If you're not too concerned about Colonial Motor's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Be aware that Colonial Motor is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.