Chorus Dividend Faces Headwinds as Bond Yields Climb

Chorus Ltd (ASX:CNU), a New Zealand-based fibre network operator, is set to pay its final dividend next week. The company's income appeal has been tested this week as bond yields climb on both sides of the Tasman following the Reserve Bank of Australia's latest rate increase.

The question now facing income-focused portfolios is whether Chorus' rising dividend and improving cash flow can offset the drag from a higher-yield world. With infrastructure businesses like Chorus valued partly against government bond yields, the present value of long-dated cash flows has fallen due to rising bond yields.

Chorus declared an unimputed final dividend alongside its full-year result in August, taking its total payout for the financial year above the prior year and meeting its earlier forecast. The company's operating revenue rose modestly, earnings before interest, tax, depreciation and amortisation increased, and net profit after tax rose sharply from a very low base.

The relationship between the dividend and operating cash flow is the most useful gauge of sustainability for a network owner. As the heavy fibre build has wound down, the share of operating cash flow absorbed by capital spending has fallen, leaving more room for distributions and debt management.