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Chemtrade Logistics Income Fund's (TSE:CHE.UN) Dividend Will Be CA$0.05

The board of Chemtrade Logistics Income Fund (TSE:CHE.UN) has announced that it will pay a dividend of CA$0.05 per share on the 25th of November. Based on this payment, the dividend yield on the company's stock will be 8.3%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund Might Find It Hard To Continue The Dividend

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even though Chemtrade Logistics Income Fund isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

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Analysts are expecting EPS to grow by 90.2% over the next 12 months. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

historic-dividend
historic-dividend

Chemtrade Logistics Income Fund's Track Record Isn't Great

The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. Since 2012, the annual payment back then was CA$1.20, compared to the most recent full-year payment of CA$0.60. This works out to be a decline of approximately 6.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Chemtrade Logistics Income Fund's EPS has declined at around 38% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We should note that Chemtrade Logistics Income Fund has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 Chemtrade Logistics Income Fund 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.

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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