Cedar Woods Properties (ASX:CWP) Is Increasing Its Dividend To A$0.17

The board of Cedar Woods Properties Limited (ASX:CWP) has announced that it will be paying its dividend of A$0.17 on the 25th of October, an increased payment from last year's comparable dividend. This makes the dividend yield 4.5%, which is above the industry average.

See our latest analysis for Cedar Woods Properties

Cedar Woods Properties' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Cedar Woods Properties' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 5.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$0.27 in 2014, and the most recent fiscal year payment was A$0.25. The dividend has shrunk at a rate of less than 1% a year over this period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Cedar Woods Properties' earnings per share has fallen at approximately 4.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Cedar Woods Properties' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Cedar Woods Properties will make a great income stock. While Cedar Woods Properties is earning enough to cover the payments, the cash flows are lacking. 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. For example, we've identified 2 warning signs for Cedar Woods Properties (1 is concerning!) that you should be aware of before investing. Is Cedar Woods Properties not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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