Yahoo Finance Freehold Royalties (TSE:FRU) Has Affirmed Its 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 April. Based on this payment, the dividend yield on the company's stock will be 7.9%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Freehold Royalties
Freehold Royalties' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was higher than its profits, and made up 79% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
The next year is set to see EPS grow by 130.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 48% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from CA$1.68 total annually to CA$1.08. The dividend has shrunk at around 4.3% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Freehold Royalties Might Find It Hard To Grow Its Dividend
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. We are encouraged to see that Freehold Royalties has grown earnings per share at 49% per year over the past five years. Although earnings per share is up nicely Freehold Royalties is paying out 123% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Freehold Royalties has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Freehold Royalties that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
