Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Mapletree Logistics Trust (SGX:M44U) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 29th of July, you won't be eligible to receive this dividend, when it is paid on the 6th of September.
Mapletree Logistics Trust's upcoming dividend is S$0.02 a share, following on from the last 12 months, when the company distributed a total of S$0.081 per share to shareholders. Last year's total dividend payments show that Mapletree Logistics Trust has a trailing yield of 5.1% on the current share price of SGD1.6. 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 Mapletree Logistics Trust has been able to grow its dividends, or if the dividend might be cut.
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. Mapletree Logistics Trust is paying out an acceptable 59% of its profit, a common payout level among most companies. While Mapletree Logistics 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 59% of its free cash flow as dividends, within the usual 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.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Mapletree Logistics Trust's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
We'd also point out that Mapletree Logistics Trust issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Mapletree Logistics Trust has delivered 1.0% dividend growth per year on average over the past 10 years.
The Bottom Line
Has Mapletree Logistics Trust got what it takes to maintain its dividend payments? Earnings per share have barely grown, and although Mapletree Logistics Trust paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Ever wonder what the future holds for Mapletree Logistics Trust? See what the 14 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.
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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.