Chorus (NZSE:CNU) Is Paying Out A Larger Dividend Than Last Year

Chorus Limited's (NZSE:CNU) dividend will be increasing to NZ$0.16 on 12th of April. The announced payment will take the dividend yield to 4.6%, which is in line with the average for the industry.

Check out our latest analysis for Chorus

Chorus' Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the company was paying out 209% 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.

EPS is set to fall by 15.1% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be , which is an improvement from where it is currently.

Chorus' Dividend Has Lacked Consistency

It's comforting to see that Chorus has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. The dividend has gone from NZ$0.15 in 2013 to the most recent annual payment of NZ$0.25. This implies that the company grew its distributions at a yearly rate of about 6.2% over that duration. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been sinking by 100% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Chorus' Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Chorus that you should be aware of before investing. Is Chorus not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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