Is Newriver Reit (LON:NRR) dividend payment about to get cut?

Investors love dividends but when business fortunes fade, these payments to shareholders can end up doing more harm than good. When a company is forgoing profitable investment opportunities just to make its dividend payment, you have to wonder whether or not a cut is around the corner...

This could end up being the case with Newriver Reit (LON:NRR), which pays a 0.17 rolling dividend. The *COMPANY BRIEF*, but it still *FINANCIAL BRIEF*.

A quick analysis of the company shows that shareholders ought to be seriously concerned about the sustainability of its dividend...

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Is Newriver Reit's (LON:NRR) dividend cover below 1.0x?

Dividend cover is an important dividend health metric and is calculated by dividing earnings per share divided by dividend per share (EPS/DPS). The usual rule of thumb is that dividend cover of less than 1.5x earnings can become a concern.

• The rolling dividend cover is based on projected dividends and earnings. Newriver Reit's (LON:NRR) rolling dividend cover is 0.51, which is a pass.

• The historic dividend cover is, of course, based on historic dividends and earnings. Newriver Reit's (LON:NRR) historic dividend cover is -1.16.

Newriver Reit's dividend cover fails our test, suggesting that the dividend could be at risk.

Does Newriver Reit (LON:NRR) have a strong balance sheet?

Another way of thinking about dividend safety is to instead look at a company’s balance sheet strength. A highly leveraged company that struggles to meet its short-term liabilities is more likely to cut its dividend than a well-financed one.

A safe level of net gearing (net debt to equity) on the balance sheet is generally considered to be 50 percent or less. Newriver Reit's (LON:NRR) net gearing ratio is 74.6% - well above the 50% threshold.

The current ratio (current assets / current liabilities ) gauges a company’s capacity to service short term debts. A current ratio of less than one can be cause for concern. Newriver Reit's (LON:NRR) current ratio is 0.96 - below our 1.0x cut-off point.

Does Newriver Reit have enough cash?

Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Newriver Reit generated 6.6p in FCF PS. This is lower than the dividend payout 17p and indicates that the company has not generated enough FCF to sustain dividends over the past twelve months.

It appears as though Newriver Reit's (LON:NRR) is struggling to finance its dividend payments. Bearing this in mind, questions must be raised about whether the cash given back to shareholders might be better used elsewhere in the business.

Income investing: what you need to know

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As for Newriver Reit (LON:NRR), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.