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Readers hoping to buy Citycon Oyj (HEL:CTY1S) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 18th of December, you won't be eligible to receive this dividend, when it is paid on the 30th of December.
Citycon Oyj's next dividend payment will be €0.16 per share. Last year, in total, the company distributed €0.65 to shareholders. Based on the last year's worth of payments, Citycon Oyj has a trailing yield of 7.0% on the current stock price of €9.315. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Citycon Oyj
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Citycon Oyj paid out 289% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. 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. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Citycon Oyj fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Readers will understand then, why we're concerned to see Citycon Oyj's earnings per share have dropped 27% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Citycon Oyj has seen its dividend decline 0.7% per annum on average over the past ten years, which is not great to see.