Do These 3 Checks Before Buying The Convenience Shop (Holding) plc (MTSE:CVS) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Convenience Shop (Holding) plc (MTSE:CVS) is about to trade ex-dividend in the next four days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order 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. Therefore, if you purchase Convenience Shop (Holding)'s shares on or after the 29th of October, you won't be eligible to receive the dividend, when it is paid on the 1st of December.
The company's next dividend payment will be €0.01 per share, on the back of last year when the company paid a total of €0.034 to shareholders. Based on the last year's worth of payments, Convenience Shop (Holding) has a trailing yield of 4.0% on the current stock price of €0.85. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are 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. Convenience Shop (Holding) distributed an unsustainably high 111% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Convenience Shop (Holding)'s dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
See our latest analysis for Convenience Shop (Holding)
Click here to see how much of its profit Convenience Shop (Holding) paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Convenience Shop (Holding)'s earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 55% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Convenience Shop (Holding) has delivered 4.3% dividend growth per year on average over the past three years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Convenience Shop (Holding) is already paying out 111% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is Convenience Shop (Holding) an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 111% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not that we think Convenience Shop (Holding) is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Convenience Shop (Holding) and want to know more, you'll find it very useful to know what risks this stock faces. For example, Convenience Shop (Holding) has 4 warning signs (and 2 which are concerning) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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