Eildon Capital Fund (ASX:EDC) Is Due To Pay A Dividend Of AU$0.02

The board of Eildon Capital Fund (ASX:EDC) has announced that it will pay a dividend of AU$0.02 per share on the 22nd of April. This makes the dividend yield 8.0%, which will augment investor returns quite nicely.

See our latest analysis for Eildon Capital Fund

Eildon Capital Fund Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

EPS is set to fall by 32.4% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 421%, which is definitely a bit high to be sustainable going forward.

Eildon Capital Fund's Dividend Has Lacked Consistency

It's comforting to see that Eildon Capital Fund has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2017, the first annual payment was AU$0.055, compared to the most recent full-year payment of AU$0.079. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend Has Limited Growth Potential

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. Earnings per share has been sinking by 32% over the last 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.

Eildon Capital Fund's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Eildon Capital Fund you should be aware of, and 3 of them make us uncomfortable. 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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