Should You Buy Collins Property Group Limited (JSE:CPP) For Its Upcoming Dividend?
It looks like Collins Property Group Limited (JSE:CPP) is about to go 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Collins Property Group investors that purchase the stock on or after the 18th of November will not receive the dividend, which will be paid on the 23rd of November.
The company's next dividend payment will be R00.55 per share. Last year, in total, the company distributed R1.10 to shareholders. Based on the last year's worth of payments, Collins Property Group has a trailing yield of 9.8% on the current stock price of R011.26. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! 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. Fortunately Collins Property Group's payout ratio is modest, at just 35% of profit. 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. Over the last year, it paid out more than three-quarters (81%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Collins Property Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Collins Property Group
Click here to see how much of its profit Collins Property Group paid out over the last 12 months.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Collins Property Group has grown its earnings rapidly, up 29% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Collins Property Group has delivered 33% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Should investors buy Collins Property Group for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in Collins Property Group for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 4 warning signs for Collins Property Group (1 doesn't sit too well with us) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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