Diversified Royalty's (TSE:DIV) Shareholders Will Receive A Bigger Dividend Than Last Year
Diversified Royalty Corp.'s (TSE:DIV) periodic dividend will be increasing on the 31st of December to CA$0.0238, with investors receiving 14% more than last year's CA$0.0208. This will take the dividend yield to an attractive 7.3%, providing a nice boost to shareholder returns.
Estimates Indicate Diversified Royalty's Could Struggle to Maintain Dividend Payments In The Future
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Diversified Royalty was paying out 145% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.
The next 12 months is set to see EPS grow by 62.4%. If the dividend continues on its recent course, the payout ratio in 12 months could be 96%, which is a bit high and could start applying pressure to the balance sheet.
View our latest analysis for Diversified Royalty
Diversified Royalty Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was CA$0.188, compared to the most recent full-year payment of CA$0.275. This means that it has been growing its distributions at 3.9% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Diversified Royalty's Dividend Might Lack Growth
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Diversified Royalty has been growing its earnings per share at 21% a year over the past five years. While EPS is growing rapidly, Diversified Royalty paid out a very high 145% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Diversified Royalty's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Diversified Royalty you should be aware of, and 2 of them are potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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