Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Over the past 10 years, CapitaLand Commercial Trust (SGX:C61U) has returned an average of 6.00% per year to shareholders in terms of dividend yield. Does CapitaLand Commercial Trust tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. See our latest analysis for CapitaLand Commercial Trust

How I analyze a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is it paying an annual yield above 75% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share risen in the past couple of years?

• Is it able to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

Does CapitaLand Commercial Trust pass our checks?

The company currently pays out 48.21% of its earnings as a dividend, according to its trailing twelve-month data, which is rather low compared to other REITs. Generally, REITs are expected to pay out the majority of its earnings to provide a regular income stream for their investors. In the near future, analysts are predicting a higher payout ratio of 104.30%, leading to a dividend yield of around 5.24%. However, EPS is forecasted to fall to SGD0.09 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Dividend payments from CapitaLand Commercial Trust have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves. Compared to its peers, CapitaLand Commercial Trust generates a yield of 5.06%, which is on the low-side for REITs stocks.

Next Steps:

Taking all the above into account, CapitaLand Commercial Trust is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key aspects you should further examine: