U.S. Markets closed

Do These 3 Checks Before Buying Armada Hoffler Properties, Inc. (NYSE:AHH) For Its Upcoming Dividend

Simply Wall St

It looks like Armada Hoffler Properties, Inc. (NYSE:AHH) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 24th of September will not receive the dividend, which will be paid on the 3rd of October.

Armada Hoffler Properties's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.8 per share to shareholders. Last year's total dividend payments show that Armada Hoffler Properties has a trailing yield of 4.6% on the current share price of $18.25. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Armada Hoffler Properties has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Armada Hoffler Properties

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 75% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Armada Hoffler Properties's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:AHH Historical Dividend Yield, September 19th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that Armada Hoffler Properties's earnings are down 2.8% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Armada Hoffler Properties has delivered 4.9% dividend growth per year on average over the past six years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Armada Hoffler Properties is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Has Armada Hoffler Properties got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think Armada Hoffler Properties is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for Armada Hoffler Properties? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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.