The board of CDL Investments New Zealand Limited (NZSE:CDI) has announced that it will pay a dividend of NZ$0.0412 per share on the 17th of May. This means that the annual payment will be 4.5% of the current stock price, which is in line with the average for the industry.
See our latest analysis for CDL Investments New Zealand
CDL Investments New Zealand Is Paying Out More Than It Is Earning
Solid dividend yields are great, but they only really help us if the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. This is a pretty unsustainable practice, and could be risky if continued for the long term.
If the company can’t turn things around, EPS could fall by 17.5% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 115%, which is definitely a bit high to be sustainable going forward.
CDL Investments New Zealand Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from NZ$0.02 total annually to NZ$0.035. This means that it has been growing its distributions at 5.8% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Unfortunately things aren’t as good as they seem. CDL Investments New Zealand’s earnings per share has shrunk at 17% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
CDL Investments New Zealand’s Dividend Doesn’t Look Sustainable
In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about CDL Investments New Zealand’s payments, as there could be some issues with sustaining them into the future. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We’ve spotted 2 warning signs for CDL Investments New Zealand (of which 1 is concerning!) you should know about. Is CDL Investments New Zealand not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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Find out whether CDL Investments New Zealand is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
