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The board of The Keg Royalties Income Fund (TSE:KEG.UN) has announced that it will pay a dividend of CA$0.0946 per share on the 29th of November. This makes the dividend yield 7.5%, which will augment investor returns quite nicely.
View our latest analysis for Keg Royalties Income Fund
Keg Royalties Income Fund's Future Dividends May Potentially Be At Risk
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 282% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 69%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
If the company can't turn things around, EPS could fall by 24.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 417%, which could put the dividend in jeopardy if the company's earnings don't improve.
Keg Royalties Income Fund Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was CA$0.96, compared to the most recent full-year payment of CA$1.14. This means that it has been growing its distributions at 1.7% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
Dividend Growth Potential Is Shaky
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 24% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Keg Royalties Income Fund (of which 2 are potentially serious!) you should know about. Is Keg Royalties Income Fund not quite the opportunity you were looking for? Why not check out our selection of top 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.