Chorus Limited (NZSE:CNU) will increase its dividend on the 12th of October to NZ$0.17. The announced payment will take the dividend yield to 4.3%, which is in line with the average for the industry.
Chorus Doesn't Earn Enough To Cover Its Payments
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Looking forward, earnings per share is forecast to fall by 9.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.
Chorus' Dividend Has Lacked Consistency
It's comforting to see that Chorus has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The first annual payment during the last 9 years was NZ$0.15 in 2012, and the most recent fiscal year payment was NZ$0.25. This means that it has been growing its distributions at 6.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Chorus might have put its house in order since then, but we remain cautious.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Chorus' EPS has declined at around 14% 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.
We're Not Big Fans Of Chorus' Dividend
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Chorus that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.