Yahoo Finance Freehold Royalties (TSE:FRU) Will Pay A Larger Dividend Than Last Year At CA$0.09
Freehold Royalties Ltd.'s (TSE:FRU) dividend will be increasing from last year's payment of the same period to CA$0.09 on 15th of September. This will take the annual payment to 6.8% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Freehold Royalties
Freehold Royalties' Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Freehold Royalties' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Looking forward, earnings per share is forecast to fall by 3.0% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 73%, which is comfortable for the company to continue in the future.
Freehold Royalties' Track Record Isn't Great
The company hasn't been particularly volatile, but it has been steadily decreasing which of course is not what investors like to see. The dividend has gone from an annual total of CA$1.68 in 2012 to the most recent total annual payment of CA$0.96. The dividend has shrunk at around 5.4% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Freehold Royalties has impressed us by growing EPS at 44% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
We should note that Freehold Royalties has issued stock equal to 15% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
Our Thoughts On Freehold Royalties' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Freehold Royalties' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Freehold Royalties (2 make us uncomfortable!) 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.
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