Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kimco Realty Corporation (NYSE:KIM) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 1st of October in order to receive the dividend, which the company will pay on the 15th of October.
Kimco Realty's next dividend payment will be US$0.3 per share. Last year, in total, the company distributed US$1.1 to shareholders. Last year's total dividend payments show that Kimco Realty has a trailing yield of 5.4% on the current share price of $20.78. If you buy this business for its dividend, you should have an idea of whether Kimco Realty's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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 87% 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 Kimco Realty 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 Kimco Realty generated enough free cash flow to afford its dividend. It paid out 88% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Kimco Realty, with earnings per share up 7.8% on average over the last five years. Decent historical earnings per share growth suggests Kimco Realty has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kimco Realty's dividend payments per share have declined at 4.4% per year on average over the past ten years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
The Bottom Line
Should investors buy Kimco Realty for the upcoming dividend? Earnings per share growth has been unremarkable, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear excessive. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Wondering what the future holds for Kimco Realty? See what the 11 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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If you spot an error that warrants correction, please contact the editor at email@example.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.