Yahoo Finance We Wouldn't Be Too Quick To Buy Boston Pizza Royalties Income Fund (TSE:BPF.UN) Before It Goes Ex-Dividend
Boston Pizza Royalties Income Fund (TSE:BPF.UN) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 18th of March in order to be eligible for this dividend, which will be paid on the 31st of March.
Boston Pizza Royalties Income Fund's next dividend payment will be CA$0.065 per share, and in the last 12 months, the company paid a total of CA$0.78 per share. Looking at the last 12 months of distributions, Boston Pizza Royalties Income Fund has a trailing yield of approximately 5.9% on its current stock price of CA$13.15. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Boston Pizza Royalties Income Fund can afford its dividend, and if the dividend could grow.
See our latest analysis for Boston Pizza Royalties Income Fund
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Boston Pizza Royalties Income Fund paid out 105% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 49% of its free cash flow in the past year.
It's good to see that while Boston Pizza Royalties Income Fund's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Boston Pizza Royalties Income Fund's earnings per share have dropped 15% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Boston Pizza Royalties Income Fund has seen its dividend decline 5.5% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Final Takeaway
Is Boston Pizza Royalties Income Fund an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 105% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not that we think Boston Pizza Royalties Income Fund is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Boston Pizza Royalties Income Fund. For instance, we've identified 5 warning signs for Boston Pizza Royalties Income Fund (1 makes us a bit uncomfortable) you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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