Readers hoping to buy Chemtrade Logistics Income Fund (TSE:CHE.UN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Chemtrade Logistics Income Fund investors that purchase the stock on or after the 30th of December will not receive the dividend, which will be paid on the 26th of January.
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. Looking at the last 12 months of distributions, Chemtrade Logistics Income Fund has a trailing yield of approximately 8.0% on its current stock price of CA$7.51. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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’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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Chemtrade Logistics Income Fund didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. 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.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. 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.
To Sum It Up
Should investors buy Chemtrade Logistics Income Fund for the upcoming dividend? 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 an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.
With that being said, if you’re still considering Chemtrade Logistics Income Fund as an investment, you’ll find it beneficial to know what risks this stock is facing. Be aware that Chemtrade Logistics Income Fund is showing 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant…
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
