NetLink NBN Trust's (SGX:CJLU) Shareholders Will Receive A Bigger Dividend Than Last Year

NetLink NBN Trust (SGX:CJLU) will increase its dividend on the 13th of June to SGD0.0262, which is 1.9% higher than last year's payment from the same period of SGD0.0257. This will take the annual payment to 5.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for NetLink NBN Trust

NetLink NBN Trust Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, NetLink NBN Trust's dividend was only 2.2% of earnings, however it was paying out 103% of free cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next 12 months is set to see EPS grow by 1.7%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 170%, which probably can't continue without putting some pressure on the balance sheet.

NetLink NBN Trust Doesn't Have A Long Payment History

NetLink NBN Trust's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2018, the annual payment back then was SGD0.0462, compared to the most recent full-year payment of SGD0.0524. This means that it has been growing its distributions at 2.6% per annum over that time. NetLink NBN Trust hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that NetLink NBN Trust has been growing its earnings per share at 10% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

Overall, we always like to see the dividend being raised, but we don't think NetLink NBN Trust will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think NetLink NBN Trust is a great stock to add to your portfolio if income is your focus.

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. As an example, we've identified 1 warning sign for NetLink NBN Trust that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.