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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Essential Properties Realty Trust, Inc. (NYSE:EPRT) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 27th of September, you won't be eligible to receive this dividend, when it is paid on the 15th of October.
Essential Properties Realty Trust's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.9 per share to shareholders. Looking at the last 12 months of distributions, Essential Properties Realty Trust has a trailing yield of approximately 3.8% on its current stock price of $23.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Essential Properties Realty Trust can afford its dividend, and if the dividend could grow.
See our latest analysis for Essential Properties Realty Trust
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Essential Properties Realty Trust is paying out an acceptable 62% of its profit, a common payout level among most companies. While Essential Properties Realty 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 flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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 the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For that reason, it's encouraging to see Essential Properties Realty Trust's earnings over the past year have risen 443%. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.