Here's What We Like About Chemtrade Logistics Income Fund's (TSE:CHE.UN) Upcoming Dividend

It looks like Chemtrade Logistics Income Fund (TSE:CHE.UN) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Chemtrade Logistics Income Fund investors that purchase the stock on or after the 27th of September will not receive the dividend, which will be paid on the 31st of October.

The company's next dividend payment will be CA$0.055 per share. Last year, in total, the company distributed CA$0.66 to shareholders. Looking at the last 12 months of distributions, Chemtrade Logistics Income Fund has a trailing yield of approximately 6.3% on its current stock price of CA$10.50. If you buy this business for its dividend, you should have an idea of whether Chemtrade Logistics Income Fund's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Chemtrade Logistics Income Fund

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Chemtrade Logistics Income Fund is paying out an acceptable 53% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 45% of the free cash flow it generated, which is a comfortable payout ratio.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Chemtrade Logistics Income Fund has grown its earnings rapidly, up 55% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Chemtrade Logistics Income Fund could have strong prospects for future increases to the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chemtrade Logistics Income Fund's dividend payments per share have declined at 5.8% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy Chemtrade Logistics Income Fund for the upcoming dividend? Chemtrade Logistics Income Fund's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. Chemtrade Logistics Income Fund looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Chemtrade Logistics Income Fund has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Chemtrade Logistics Income Fund has 4 warning signs (and 1 which is a bit concerning) we think 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.