Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that The Keg Royalties Income Fund (TSE:KEG.UN) is about to go ex-dividend in just 2 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Keg Royalties Income Fund's shares before the 20th of March in order to be eligible for the dividend, which will be paid on the 29th of March.
The company's next dividend payment will be CA$0.0946 per share, on the back of last year when the company paid a total of CA$1.14 to shareholders. Based on the last year's worth of payments, Keg Royalties Income Fund stock has a trailing yield of around 7.5% on the current share price of CA$15.14. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Keg Royalties Income Fund
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Keg Royalties Income Fund paid out 56% of its earnings to investors last year, a normal payout level for most businesses. 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. It distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.
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 how much of its profit Keg Royalties Income Fund paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Keg Royalties Income Fund, with earnings per share up 6.0% on average over the last five years. Decent historical earnings per share growth suggests Keg Royalties Income Fund has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.