Chemtrade Logistics Income Fund (TSE:CHE.UN) Has Affirmed Its Dividend Of CA$0.05

The board of Chemtrade Logistics Income Fund (TSE:CHE.UN) has announced that it will pay a dividend of CA$0.05 per share on the 28th of March. This makes the dividend yield 8.2%, which will augment investor returns quite nicely.

See our latest analysis for Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund's Distributions May Be Difficult To Sustain

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Chemtrade Logistics Income Fund is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Analysts are expecting EPS to grow by 84.8% over the next 12 months. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing.

Chemtrade Logistics Income Fund's Track Record Isn't Great

The dividend is currently lower than it was 10 years ago, indicating that there has been a downward trend over that time. The first annual payment during the last 10 years was CA$1.20 in 2012, and the most recent fiscal year payment was CA$0.60. The dividend has shrunk at around 6.7% 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.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Over the past five years, it looks as though Chemtrade Logistics Income Fund's EPS has declined at around 36% a year. 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Chemtrade Logistics Income Fund's payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Chemtrade Logistics Income Fund has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Chemtrade Logistics Income Fund not quite the opportunity you were looking for? Why not check out our selection of top 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.