Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see CubeSmart (NYSE:CUBE) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 30th of September to receive the dividend, which will be paid on the 15th of October.
CubeSmart's next dividend payment will be US$0.3 per share, and in the last 12 months, the company paid a total of US$1.3 per share. Looking at the last 12 months of distributions, CubeSmart has a trailing yield of approximately 3.6% on its current stock price of $35.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether CubeSmart can afford its dividend, and if the dividend could grow.
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. CubeSmart paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. While CubeSmart 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 71% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that CubeSmart's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. That's why it's comforting to see CubeSmart's earnings have been skyrocketing, up 101% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, CubeSmart has increased its dividend at approximately 29% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Is CubeSmart an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see CubeSmart's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 74% and 71% respectively. Overall, it's hard to get excited about CubeSmart from a dividend perspective.
Wondering what the future holds for CubeSmart? See what the six 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.