Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Chemtrade Logistics Income Fund (TSE:CHE.UN) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Chemtrade Logistics Income Fund investors that purchase the stock on or after the 28th of October will not receive the dividend, which will be paid on the 25th of November.
The company's upcoming dividend is CA$0.05 a share, following on from the last 12 months, when the company distributed a total of CA$0.60 per share to shareholders. Last year's total dividend payments show that Chemtrade Logistics Income Fund has a trailing yield of 7.5% on the current share price of CA$8.02. If you buy this business for its dividend, you should have an idea of whether Chemtrade Logistics Income Fund's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chemtrade Logistics Income Fund's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Chemtrade Logistics Income Fund was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
We'd also point out that Chemtrade Logistics Income Fund issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chemtrade Logistics Income Fund has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Remember, you can always get a snapshot of Chemtrade Logistics Income Fund's financial health, by checking our visualisation of its financial health, here.
Has Chemtrade Logistics Income Fund got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Chemtrade Logistics Income Fund is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Although, if you're still interested in Chemtrade Logistics Income Fund and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 3 warning signs for Chemtrade Logistics Income Fund you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming 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.
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