The Keg Royalties Income Fund (TSE:KEG.UN) will pay a dividend of CA$0.0946 on the 29th of September. Based on this payment, the dividend yield on the company's stock will be 8.1%, which is an attractive boost to shareholder returns.
View our latest analysis for Keg Royalties Income Fund
Keg Royalties Income Fund Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Keg Royalties Income Fund's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
EPS is set to fall by 19.0% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 147%, which is definitely a bit high to be sustainable going forward.
Keg Royalties Income Fund Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from CA$0.96 total annually to CA$1.14. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year 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. However, things aren't all that rosy. Earnings per share has been sinking by 19% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
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 has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Keg Royalties Income Fund (of which 2 are a bit unpleasant!) you should know about. 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.