Freehold Royalties (TSE:FRU) Has Announced A Dividend Of CA$0.09

editorial-team@simplywallst.com (Simply Wall St)

Sat, Apr 19, 2025, 7:17 AM 3 min read

Freehold Royalties' Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 109% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Over the next year, EPS is forecast to fall by 25.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 152%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend — TSX:FRU Historic Dividend April 19th 2025

See our latest analysis for Freehold Royalties

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was CA$1.68, compared to the most recent full-year payment of CA$1.08. This works out to be a decline of approximately 4.3% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Freehold Royalties' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Freehold Royalties has been growing its earnings per share at 83% a year over the past five years. EPS has been growing well, but Freehold Royalties has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Freehold Royalties' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Freehold Royalties that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.