Here's Why We're Wary Of Buying Chemtrade Logistics Income Fund's (TSE:CHE.UN) For Its Upcoming Dividend

Chemtrade Logistics Income Fund (TSE:CHE.UN) is about to trade ex-dividend in the next three 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Chemtrade Logistics Income Fund investors that purchase the stock on or after the 29th of June will not receive the dividend, which will be paid on the 26th of July.

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 stock has a trailing yield of around 7.8% on the current share price of CA$7.68. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Chemtrade Logistics Income Fund

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Chemtrade Logistics Income Fund paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Chemtrade Logistics Income Fund didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 31% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Chemtrade Logistics Income Fund was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. 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. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

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.

The Bottom Line

Should investors buy Chemtrade Logistics Income Fund for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Chemtrade Logistics Income Fund as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Chemtrade Logistics Income Fund has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.