Here's What We Like About Chemtrade Logistics Income Fund's (TSE:CHE.UN) Upcoming Dividend
Chemtrade Logistics Income Fund (TSE:CHE.UN) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. In other words, investors can purchase Chemtrade Logistics Income Fund's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 27th of June.
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. Based on the last year's worth of payments, Chemtrade Logistics Income Fund stock has a trailing yield of around 7.2% on the current share price of CA$8.38. 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 investigate whether Chemtrade Logistics Income Fund can afford its dividend, and if the dividend could grow.
See our latest analysis for Chemtrade Logistics Income Fund
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 paid out a comfortable 38% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 22% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Chemtrade Logistics Income Fund's earnings per share have been growing at 11% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
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. Chemtrade Logistics Income Fund is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Chemtrade Logistics Income Fund an attractive dividend stock, or better left on the shelf? Chemtrade Logistics Income Fund has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Chemtrade Logistics Income Fund, and we would prioritise taking a closer look at it.
While it's tempting to invest in Chemtrade Logistics Income Fund for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Chemtrade Logistics Income Fund (1 is potentially serious!) that you ought to be aware of before buying the shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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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