The board of Corus Entertainment Inc. (TSE:CJR.B) has announced that it will pay a dividend on the 29th of September, with investors receiving CA$0.06 per share. This means the annual payment is 6.8% of the current stock price, which is above the average for the industry.
Corus Entertainment's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Corus Entertainment's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Unless the company can turn things around, EPS could fall by 2.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 26%, which we are pretty comfortable with and we think is feasible on an earnings basis.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from CA$0.87 to CA$0.24. Dividend payments have fallen sharply, down 72% over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. In the last five years, Corus Entertainment's earnings per share has shrunk at approximately 2.9% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.
Our Thoughts On Corus Entertainment's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Corus Entertainment you should be aware of, and 1 of them is a bit concerning. Is Corus Entertainment not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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