It looks like EC World Real Estate Investment Trust (SGX:BWCU) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 2nd of September, you won't be eligible to receive this dividend, when it is paid on the 26th of September.
EC World Real Estate Investment Trust's next dividend payment will be S$0.015 per share, and in the last 12 months, the company paid a total of S$0.062 per share. Looking at the last 12 months of distributions, EC World Real Estate Investment Trust has a trailing yield of approximately 8.5% on its current stock price of SGD0.73. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether EC World Real Estate Investment Trust can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 85% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. While EC World Real Estate Investment Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. 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. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that EC World Real Estate Investment Trust'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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. From this perspective, we're disturbed to see earnings per share plunged 22% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. EC World Real Estate Investment Trust has delivered an average of 3.3% per year annual increase in its dividend, based on the past 3 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. EC World Real Estate Investment Trust 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.
To Sum It Up
Is EC World Real Estate Investment Trust worth buying for its dividend? 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. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of EC World Real Estate Investment Trust.
Wondering what the future holds for EC World Real Estate Investment Trust? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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