The board of Octopus Renewables Infrastructure Trust plc (LON:ORIT) has announced that the dividend on 1st of December will be increased to ￡0.0145, which will be 11% higher than last year's payment of ￡0.0131 which covered the same period. This will take the annual payment to 6.2% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Octopus Renewables Infrastructure Trust

Octopus Renewables Infrastructure Trust Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

If the company can't turn things around, EPS could fall by 2.3% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 326%, which is definitely a bit high to be sustainable going forward.

Octopus Renewables Infrastructure Trust Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The dividend has gone from an annual total of ￡0.0424 in 2020 to the most recent total annual payment of ￡0.058. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Octopus Renewables Infrastructure Trust May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Octopus Renewables Infrastructure Trust's earnings per share has shrunk at approximately 2.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

We're Not Big Fans Of Octopus Renewables Infrastructure Trust's Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.