Yahoo Finance Freehold Royalties (TSE:FRU) Is Due To Pay A Dividend Of CA$0.09
The board of Freehold Royalties Ltd. (TSE:FRU) has announced that it will pay a dividend of CA$0.09 per share on the 15th of June. Based on this payment, the dividend yield on the company's stock will be 7.6%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Freehold Royalties
Freehold Royalties Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Freehold Royalties was paying out quite a large proportion of both earnings and cash flow, with the dividend being 152% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Looking forward, earnings per share is forecast to fall by 20.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 101%, which could put the dividend in jeopardy if the company's earnings don't improve.
Freehold Royalties' Track Record Isn't Great
The company hasn't been particularly volatile, but it has been steadily decreasing which of course is not what investors like to see. The dividend has gone from an annual total of CA$1.68 in 2013 to the most recent total annual payment of CA$1.08. This works out to be a decline of approximately 4.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Freehold Royalties has impressed us by growing EPS at 75% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Freehold Royalties hasn't been doing.
Our Thoughts On Freehold Royalties' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. 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. Just as an example, we've come across 2 warning signs for Freehold Royalties you should be aware of, and 1 of them shouldn't be ignored. Is Freehold Royalties 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.
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