The board of CDL Investments New Zealand Limited (NZSE:CDI) has announced that it will pay a dividend of NZ$0.041 per share on the 13th of May. This means the annual payment is 7.5% of the current stock price, which is above the average for the industry.
CDL Investments New Zealand's Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, CDL Investments New Zealand's dividend was only 32% of earnings, however it was paying out 280% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
EPS is set to grow by 2.2% over the next year if recent trends continue. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 79%, which is on the higher side, but certainly still feasible.
CDL Investments New Zealand Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from NZ$0.014 in 2012 to the most recent annual payment of NZ$0.035. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. Earnings have grown at around 2.2% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, CDL Investments New Zealand has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On CDL Investments New Zealand'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. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
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. Taking the debate a bit further, we've identified 2 warning signs for CDL Investments New Zealand that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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