Octopus Renewables Infrastructure Trust's (LON:ORIT) Shareholders Will Receive A Bigger Dividend Than Last Year

Octopus Renewables Infrastructure Trust plc (LON:ORIT) has announced that it will be increasing its periodic dividend on the 30th of August to £0.0151, which will be 4.1% higher than last year's comparable payment amount of £0.0145. This will take the dividend yield to an attractive 7.9%, providing a nice boost to shareholder returns.

See our latest analysis for Octopus Renewables Infrastructure Trust

Octopus Renewables Infrastructure Trust Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was higher than its profits, and made up 91% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

EPS is set to grow by 0.5% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 271% over the next year.

Octopus Renewables Infrastructure Trust Is Still Building Its Track Record

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. The annual payment during the last 4 years was £0.0424 in 2020, and the most recent fiscal year payment was £0.06. This works out to be a compound annual growth rate (CAGR) of approximately 9.1% a year 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.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Octopus Renewables Infrastructure Trust hasn't seen much change in its earnings per share over the last five years. Paying more than double what it is paying out, and not showing a track record of being able to grow earnings, we can only see dividend cuts in the future.

Octopus Renewables Infrastructure Trust's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Octopus Renewables Infrastructure Trust is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Octopus Renewables Infrastructure Trust that investors need to be conscious of moving forward. 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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