Why It Might Not Make Sense To Buy Chemtrade Logistics Income Fund (TSE:CHE.UN) For Its Upcoming Dividend

Chemtrade Logistics Income Fund (TSE:CHE.UN) stock is about to trade ex-dividend in 3 days. You will need to purchase shares before the 25th of February to receive the dividend, which will be paid on the 26th of March.

Chemtrade Logistics Income Fund's next dividend payment will be CA$0.05 per share, and in the last 12 months, the company paid a total of CA$0.60 per share. Based on the last year's worth of payments, Chemtrade Logistics Income Fund stock has a trailing yield of around 8.6% on the current share price of CA$7.01. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Chemtrade Logistics Income Fund can afford its dividend, and if the dividend could grow.

View 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 reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Fortunately, it paid out only 50% of its free cash flow in the past year.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Chemtrade Logistics Income Fund was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Chemtrade Logistics Income Fund has seen its dividend decline 6.7% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Chemtrade Logistics Income Fund every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Chemtrade Logistics Income Fund an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Chemtrade Logistics Income Fund. Be aware that Chemtrade Logistics Income Fund is showing 2 warning signs in our investment analysis, and 1 of those is concerning...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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