Yahoo Finance Why It Might Not Make Sense To Buy Chemtrade Logistics Income Fund (TSE:CHE.UN) For Its Upcoming Dividend
Chemtrade Logistics Income Fund (TSE:CHE.UN) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Chemtrade Logistics Income Fund's shares before the 30th of December in order to receive the dividend, which the company will pay on the 26th of January.
The company's next dividend payment will be CA$0.05 per share, on the back of last year when the company paid a total of CA$0.60 to shareholders. Based on the last year's worth of payments, Chemtrade Logistics Income Fund has a trailing yield of 8.0% on the current stock price of CA$7.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Chemtrade Logistics Income Fund
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chemtrade Logistics Income Fund reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Chemtrade Logistics Income Fund reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Chemtrade Logistics Income Fund also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Chemtrade Logistics Income Fund's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
We update our analysis on Chemtrade Logistics Income Fund every 24 hours, so you can always get the latest insights on its financial health, here.
Final Takeaway
Should investors buy Chemtrade Logistics Income Fund for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Chemtrade Logistics Income Fund despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with Chemtrade Logistics Income Fund (at least 1 which can't be ignored), and understanding these should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
