Colonial Motor (NZSE:CMO) Will Pay A Larger Dividend Than Last Year At NZ$0.5529

Simply Wall St
·3 min read

The Colonial Motor Company Limited's (NZSE:CMO) dividend will be increasing from last year's payment of the same period to NZ$0.5529 on 3rd of October. This takes the annual payment to 6.2% of the current stock price, which is about average for the industry.

View our latest analysis for Colonial Motor

Colonial Motor's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Colonial Motor was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 8.3% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 70% by next year, which is in a pretty sustainable range.

historic-dividend
historic-dividend

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was NZ$0.19 in 2012, and the most recent fiscal year payment was NZ$0.62. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Colonial Motor has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See Colonial Motor's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Colonial Motor has seen EPS rising for the last five years, at 8.3% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

We Really Like Colonial Motor's Dividend

Overall, a dividend increase is always good, and we think that Colonial Motor is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Colonial Motor that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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