Cadence Opportunities Fund's (ASX:CDO) Dividend Will Be A$0.07

The board of Cadence Opportunities Fund Limited (ASX:CDO) has announced that it will pay a dividend on the 31st of October, with investors receiving A$0.07 per share. Based on this payment, the dividend yield on the company's stock will be 7.5%, which is an attractive boost to shareholder returns.

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Estimates Indicate Cadence Opportunities Fund's Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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 23%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to fall by 21.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 181%, which could put the dividend under pressure if earnings don't start to improve.

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Cadence Opportunities Fund's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. The annual payment during the last 4 years was A$0.15 in 2021, and the most recent fiscal year payment was 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Cadence Opportunities Fund's EPS has fallen by approximately 21% per year during 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cadence Opportunities Fund's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Cadence Opportunities Fund you should be aware of, and 1 of them is a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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