Corus Entertainment Inc. (TSE:CJR.B) investors will receive a payment of Cdn$0.06 per share on December 29. The dividend yield will be 10.0% based on this payment, which is still above the industry average.
While dividend yields are important to income investors, it’s also important to consider any major movement in stock price, as it will generally outweigh any gains from distributions. Corus Entertainment’s stock price is down 37% in the last 3 months, which is not ideal for investors and may explain a sharp increase in dividend yield.
review the opportunities and risks within the CA Media industry.
Corus Entertainment distributions can be difficult to maintain
A great dividend yield for a few years doesn’t mean much if it can’t be sustained. Corus Entertainment isn’t turning a profit, but its free cash flows easily cover the dividend, leaving plenty to reinvest in the business. In general, we think cash flow is more important than accounting measures of earnings, so we’re pretty comfortable with the dividend at this level.
Assuming that the trend of recent years continues, EPS will grow by 10.9% in the next 12 months. We like to see the company move towards profitability, but this probably won’t be enough for it to post a positive net income this year. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
The company’s dividend record has been marked by instability, with at least one cut in the last 10 years. The annual payment for the past 10 years was CA$0.96 in 2012, and the payment for the most recent fiscal year was CA$0.24. Dividend payments have fallen dramatically, 75% during that time. Diminishing dividends are generally not what we look for as they may indicate that the company is facing some challenges.
The company could face some challenges to increase the dividend
With a relatively shaky dividend and a bad track record of dividend reductions, it’s even more important to see if EPS is growing. We are encouraged to see that Corus Entertainment has grown earnings per share by 11% per year over the past five years. It’s not a good thing that the company isn’t making a profit, but the decent growth in recent years is certainly a positive sign. All is not lost, but the future of dividends definitely hinges on the company’s ability to turn profitable soon.
Our thoughts on the Corus Entertainment dividend
In summary, while it’s good to see that the dividend hasn’t been cut, we’re a little wary of Corus Entertainment’s payouts as there could be some issues keeping them going in the future. The company is generating a lot of cash, which could sustain the dividend for a while, but the track record hasn’t been great. I would be a bit cautious to rely on these stocks primarily for dividend income.
Companies that have a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. At the same time, there are other factors that our readers should consider before investing capital in a stock. For example, we have selected 1 warning sign for Corus Entertainment that investors should be aware of. If you are a dividend investor, you can also check out our Selected list of high-yield dividend stocks.
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