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Diversified Royalty Corp. (TSE:DIV) has announced that it will pay a dividend of CA$0.0208 per share on the 31st of March. The dividend yield will be 9.0% based on this payment which is still above the industry average.
See our latest analysis for Diversified Royalty
Diversified Royalty's Future Dividends May Potentially Be At Risk
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 122% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.
Over the next year, EPS is forecast to fall by 10.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 153%, which could put the dividend under pressure if earnings don't start to improve.
Diversified Royalty Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$0.188 in 2015, and the most recent fiscal year payment was CA$0.25. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Diversified Royalty Might Find It Hard To Grow Its Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Diversified Royalty has grown earnings per share at 13% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
Diversified Royalty's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Diversified Royalty that investors should know about before committing capital to this stock. 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.