Chemtrade Logistics Income Fund (TSE:CHE.UN) Looks Interesting, And It's About To Pay A Dividend

It looks like Chemtrade Logistics Income Fund (TSE:CHE.UN) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Chemtrade Logistics Income Fund's shares before the 28th of June to receive the dividend, which will be paid on the 31st of July.

The company's next dividend payment will be CA$0.055 per share, on the back of last year when the company paid a total of CA$0.66 to shareholders. Looking at the last 12 months of distributions, Chemtrade Logistics Income Fund has a trailing yield of approximately 7.2% on its current stock price of CA$9.20. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Chemtrade Logistics Income Fund has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Chemtrade Logistics Income Fund

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Chemtrade Logistics Income Fund's payout ratio is modest, at just 34% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 35% of its free cash flow in the past year.

It's positive to see that Chemtrade Logistics Income Fund's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Chemtrade Logistics Income Fund has grown its earnings rapidly, up 53% a year for the past five years. Chemtrade Logistics Income Fund is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chemtrade Logistics Income Fund has seen its dividend decline 5.8% per annum on average over the past 10 years, which is not great to see. Chemtrade Logistics Income Fund is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Should investors buy Chemtrade Logistics Income Fund for the upcoming dividend? It's great that Chemtrade Logistics Income Fund is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Chemtrade Logistics Income Fund looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Chemtrade Logistics Income Fund for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 3 warning signs for Chemtrade Logistics Income Fund (of which 1 doesn't sit too well with us!) you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com