Cadence Opportunities Fund (ASX:CDO) Is Paying Out A Dividend Of A$0.07

Cadence Opportunities Fund Limited (ASX:CDO) will pay a dividend of A$0.07 on the 31st of October. Based on this payment, the dividend yield on the company's stock will be 7.1%, which is an attractive boost to shareholder returns.

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Cadence Opportunities Fund's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 143% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 21%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, EPS could fall by 21.3% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 180%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Cadence Opportunities Fund

Cadence Opportunities Fund's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2021, the dividend has gone from A$0.15 total annually to A$0.135. The dividend has shrunk at around 2.6% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Cadence Opportunities Fund's earnings per share has shrunk at 21% a year over the past five years. 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.

Cadence Opportunities Fund's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Cadence Opportunities Fund has 4 warning signs (and 1 which is a bit concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.