U.S. Markets closed

Do These 3 Checks Before Buying Great Portland Estates Plc (LON:GPOR) For Its Upcoming Dividend

Simply Wall St

It looks like Great Portland Estates Plc (LON:GPOR) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 21st of November will not receive this dividend, which will be paid on the 2nd of January.

Great Portland Estates's upcoming dividend is UK£0.047 a share, following on from the last 12 months, when the company distributed a total of UK£0.12 per share to shareholders. Calculating the last year's worth of payments shows that Great Portland Estates has a trailing yield of 1.6% on the current share price of £7.826. If you buy this business for its dividend, you should have an idea of whether Great Portland Estates's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Great Portland Estates

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Great Portland Estates is paying out an acceptable 72% of its profit, a common payout level among most companies. 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. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (72%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

LSE:GPOR Historical Dividend Yield, November 17th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Great Portland Estates's earnings per share have plummeted approximately 32% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Great Portland Estates has seen its dividend decline 1.8% per annum on average over the past ten years, which is not great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Great Portland Estates? 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 Great Portland Estates is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for Great Portland Estates? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.