Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that One Liberty Properties, Inc. (NYSE:OLP) is about to go ex-dividend in just 4 days. You will need to purchase shares before the 24th of September to receive the dividend, which will be paid on the 10th of October.
One Liberty Properties's next dividend payment will be US$0.5 per share, on the back of last year when the company paid a total of US$1.8 to shareholders. Based on the last year's worth of payments, One Liberty Properties has a trailing yield of 6.3% on the current stock price of $28.62. If you buy this business for its dividend, you should have an idea of whether One Liberty Properties's dividend is reliable and sustainable. So we need to investigate whether One Liberty Properties can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 92% 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 concerned if earnings began to decline. While One Liberty Properties 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. A useful secondary check can be to evaluate whether One Liberty Properties generated enough free cash flow to afford its dividend. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see One Liberty Properties's earnings per share have been shrinking at 4.0% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. One Liberty Properties has delivered an average of 7.4% per year annual increase in its dividend, based on the past ten 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. One Liberty 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
Should investors buy One Liberty Properties for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least One Liberty Properties's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Ever wonder what the future holds for One Liberty Properties? See what the two 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.
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