Stock Analysis

Chorus' (NZSE:CNU) Dividend Will Be Increased To NZ$0.21

  •  Updated
NZSE:CNU
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The board of Chorus Limited (NZSE:CNU) has announced that it will be paying its dividend of NZ$0.21 on the 11th of October, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 4.4%.

Check out our latest analysis for Chorus

Chorus Doesn't Earn Enough To Cover Its Payments

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the company was paying out 245% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to expand by 21.2%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

historic-dividend
NZSE:CNU Historic Dividend September 7th 2022

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was NZ$0.146 in 2012, and the most recent fiscal year payment was NZ$0.35. This means that it has been growing its distributions at 9.1% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Chorus might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Chorus' earnings per share has shrunk at 12% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Chorus' Dividend Doesn't Look Great

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for Chorus that investors should take into consideration. Is Chorus not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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About NZSE:CNU

Chorus

Chorus Limited, together with its subsidiaries, provides fixed line communications infrastructure services in New Zealand.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth1
Past Performance4
Financial Health0
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Proven track record and slightly overvalued.