Channel Infrastructure NZ (NZSE:CHI) Is Due To Pay A Dividend Of NZ$0.0625

The board of Channel Infrastructure NZ Limited (NZSE:CHI) has announced that it will pay a dividend of NZ$0.0625 per share on the 24th of September. Even though the dividend went up, the yield is still quite low at only 4.6%.

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Channel Infrastructure NZ's Future Dividends May Potentially Be At Risk

If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 48.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 131%, which probably can't continue without putting some pressure on the balance sheet.

See our latest analysis for Channel Infrastructure NZ

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of NZ$0.10 in 2015 to the most recent total annual payment of NZ$0.11. Its dividends have grown at less than 1% per annum over this time frame. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Channel Infrastructure NZ Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Channel Infrastructure NZ has grown earnings per share at 83% per year over the past five years. Although earnings per share is up nicely Channel Infrastructure NZ is paying out 196% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Channel Infrastructure NZ's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Channel Infrastructure NZ's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Channel Infrastructure NZ that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated 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.