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

Chorus Limited (NZSE:CNU) will increase its dividend on the 12th of April to NZ$0.16. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.

View our latest analysis for Chorus

Chorus Doesn't Earn Enough To Cover Its Payments

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the company was paying out 209% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, earnings per share is forecast to fall by 10.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was NZ$0.15 in 2012, and the most recent fiscal year payment was NZ$0.28. This means that it has been growing its distributions at 6.9% 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

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Chorus' EPS has fallen by approximately 16% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

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 isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Chorus you should be aware of, and 1 of them is a bit concerning. Is Chorus not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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