Is Tritax Big Box REIT plc (LON:BBOX) At Risk Of Cutting Its Dividend?

Simply Wall St

Mon, Jun 10, 2019, 3:41 AM

Is Tritax Big Box REIT plc (LON:BBOX) a good dividend stock? How would you know? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

In this case, Tritax Big Box REIT likely looks attractive to dividend investors, given its 4.4% dividend yield and five-year payment history. It sure looks interesting on these metrics - but there's always more to the story . When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Explore this interactive chart for our latest analysis on Tritax Big Box REIT!

LSE:BBOX Historical Dividend Yield, June 10th 2019

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 102% of Tritax Big Box REIT's profits were paid out as dividends in the last 12 months. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Tritax Big Box REIT paid out 102% of its free cash last year. Cash flows can be lumpy, but this dividend was not well covered by cash flow. As Tritax Big Box REIT's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.

We update our data on Tritax Big Box REIT every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Tritax Big Box REIT has been paying a dividend for the past five years. During the past five-year period, the first annual payment was UK£0.037 in 2014, compared to UK£0.067 last year. Dividends per share have grown at approximately 13% per year over this time. The dividends haven't grown at precisely 13% every year, but this is a useful way to average out the historical rate of growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 6.3% a year for the past five years, which is better than seeing them shrink! Although per-share earnings are growing at a credible rate, virtually all of the income is being paid out as dividends to shareholders. This is okay, but may limit growth in the company's future dividend payments.

We'd also point out that Tritax Big Box REIT issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Tritax Big Box REIT paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. There are a few too many issues for us to get comfortable with Tritax Big Box REIT from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.

Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Tritax Big Box REIT analysts we track are forecasting continued growth with our free report on analyst estimates for the company.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

Terms and Privacy Policy

Your Privacy Choices

Utah Privacy Notice

More Info