The board of NetLink NBN Trust (SGX:CJLU) has announced that it will be increasing its dividend by 1.1% on the 1st of December to SGD0.0265, up from last year's comparable payment of SGD0.0262. This will take the dividend yield to an attractive 6.3%, providing a nice boost to shareholder returns.

View our latest analysis for NetLink NBN Trust

NetLink NBN Trust Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand by 6.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 180%, which is a bit high and could start applying pressure to the balance sheet.

NetLink NBN Trust Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 5 years was SGD0.0462 in 2018, and the most recent fiscal year payment was SGD0.053. This works out to be a compound annual growth rate (CAGR) of approximately 2.8% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. With such low earnings growth, paying out more than double what it is earning is setting up NetLink NBN Trust to have to cut earnings in the future.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for NetLink NBN Trust that investors should know about before committing capital to this stock. Is NetLink NBN Trust not quite the opportunity you were looking for? Why not check out our selection of top 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.