Chemtrade Logistics Income Fund (TSE:CHE.UN) Is Paying Out A Dividend Of CA$0.05

The board of Chemtrade Logistics Income Fund (TSE:CHE.UN) has announced that it will pay a dividend on the 25th of November, with investors receiving CA$0.05 per share. This means the annual payment is 8.3% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund Might Find It Hard To Continue The Dividend

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even though Chemtrade Logistics Income Fund isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS is forecast to rise by 90.2%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

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

The company hasn't been particularly volatile, but it has been steadily decreasing which of course is not what investors like to see. The 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. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Chemtrade Logistics Income Fund's EPS has fallen by approximately 38% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We should note that Chemtrade Logistics Income Fund has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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 is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Chemtrade Logistics Income Fund that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.