Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Plymouth Industrial REIT, Inc. (NYSEMKT:PLYM) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 27th of September will not receive this dividend, which will be paid on the 31st of October.
Plymouth Industrial REIT's next dividend payment will be US$0.4 per share, and in the last 12 months, the company paid a total of US$1.5 per share. Calculating the last year's worth of payments shows that Plymouth Industrial REIT has a trailing yield of 7.8% on the current share price of $19.16. If you buy this business for its dividend, you should have an idea of whether Plymouth Industrial REIT's dividend is reliable and sustainable. So we need to investigate whether Plymouth Industrial REIT 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 100% 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 Plymouth Industrial REIT 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Plymouth Industrial REIT reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
We'd also point out that Plymouth Industrial REIT issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Plymouth Industrial REIT's dividend payments are effectively flat on where they were two years ago.
Remember, you can always get a snapshot of Plymouth Industrial REIT's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Has Plymouth Industrial REIT got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for Plymouth Industrial REIT? 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.
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 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.