Eildon Capital Fund (ASX:EDC) Has Announced That Its Dividend Will Be Reduced To AU$0.015

Eildon Capital Fund's (ASX:EDC) dividend is being reduced by 26% to AU$0.015 per share on 22nd of July. This means the annual payment is 7.5% of the current stock price, which is above the average for the industry.

View our latest analysis for Eildon Capital Fund

Eildon Capital Fund Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before this announcement, Eildon Capital Fund was paying out 263% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

EPS is set to fall by 32.4% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 396%, which could put the dividend in jeopardy if the company's earnings don't improve.

Eildon Capital Fund's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the first annual payment was AU$0.055, compared to the most recent full-year payment of AU$0.079. This implies that the company grew its distributions at a yearly rate of about 7.6% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Eildon Capital Fund might have put its house in order since then, but we remain cautious.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 32% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Eildon Capital Fund's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Eildon Capital Fund (of which 3 make us uncomfortable!) you should know about. Is Eildon Capital Fund not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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