Octopus Renewables Infrastructure Trust (LON:ORIT) Is Increasing Its Dividend To £0.0151

Octopus Renewables Infrastructure Trust plc (LON:ORIT) will increase its dividend on the 28th of February to £0.0151, which is 4.1% higher than last year's payment from the same period of £0.0145. This will take the dividend yield to an attractive 9.0%, providing a nice boost to shareholder returns.

View our latest analysis for Octopus Renewables Infrastructure Trust

Estimates Indicate Octopus Renewables Infrastructure Trust's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 181% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 65%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS could expand by 8.6% if the company continues along the path it has been on recently. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 191% over the next year.

Octopus Renewables Infrastructure Trust Doesn't Have A Long Payment History

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the dividend has gone from £0.0424 total annually to £0.0604. This means that it has been growing its distributions at 9.2% per annum over that time. Octopus Renewables Infrastructure Trust has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

Octopus Renewables Infrastructure Trust May Have Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Octopus Renewables Infrastructure Trust has impressed us by growing EPS at 8.6% per year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Our Thoughts On Octopus Renewables Infrastructure Trust's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Octopus Renewables Infrastructure Trust is a great stock to add to your portfolio if income is your focus.

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. Just as an example, we've come across 2 warning signs for Octopus Renewables Infrastructure Trust you should be aware of, and 1 of them doesn't sit too well with us. Is Octopus Renewables Infrastructure Trust 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.