UK Markets closed

Why You Should Leave Schroder European Real Estate Investment Trust Plc (LON:SERE)'s Upcoming Dividend On The Shelf

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Schroder European Real Estate Investment Trust Plc (LON:SERE) is about to go ex-dividend in just 2 days. You can purchase shares before the 3rd of October in order to receive the dividend, which the company will pay on the 21st of October.

Schroder European Real Estate Investment Trust's next dividend payment will be UK£0.02 per share. Last year, in total, the company distributed UK£0.07 to shareholders. Based on the last year's worth of payments, Schroder European Real Estate Investment Trust has a trailing yield of 5.7% on the current stock price of £1.145. 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! As a result, readers should always check whether Schroder European Real Estate Investment Trust has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Schroder European Real Estate Investment Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Schroder European Real Estate Investment Trust is paying out an acceptable 65% of its profit, a common payout level among most companies. While Schroder European Real Estate Investment Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. 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. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Schroder European Real Estate Investment Trust paid out over the last 12 months.

LSE:SERE Historical Dividend Yield, September 30th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Schroder European Real Estate Investment Trust's earnings per share plummeted 67% over the past year,which is rarely good news for the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last three years, Schroder European Real Estate Investment Trust has lifted its dividend by approximately 32% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

To Sum It Up

Should investors buy Schroder European Real Estate Investment Trust for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think Schroder European Real Estate Investment Trust is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Curious about whether Schroder European Real Estate Investment Trust has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.