Readers hoping to buy Cache Logistics Trust (SGX:K2LU) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 1st of August, you won't be eligible to receive this dividend, when it is paid on the 28th of August.
Cache Logistics Trust's next dividend payment will be S$0.013 per share, and in the last 12 months, the company paid a total of S$0.059 per share. Based on the last year's worth of payments, Cache Logistics Trust stock has a trailing yield of around 7.7% on the current share price of SGD0.765. If you buy this business for its dividend, you should have an idea of whether Cache Logistics Trust's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Cache Logistics Trust
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. While Cache Logistics Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. A useful secondary check can be to evaluate whether Cache Logistics Trust generated enough free cash flow to afford its dividend. It paid out 86% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. Cache Logistics Trust's earnings per share have fallen at approximately 21% a year over the previous 5 years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cache Logistics Trust has seen its dividend decline 1.6% per annum on average over the past 9 years, which is not great to see.