AEW UK Long Lease REIT plc (LON:AEWL) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 14th of November to receive the dividend, which will be paid on the 29th of November.
AEW UK Long Lease REIT's next dividend payment will be UK£0.01 per share, on the back of last year when the company paid a total of UK£0.06 to shareholders. Last year's total dividend payments show that AEW UK Long Lease REIT has a trailing yield of 7.3% on the current share price of £0.7575. If you buy this business for its dividend, you should have an idea of whether AEW UK Long Lease REIT's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Its dividend payout ratio is 80% 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 AEW UK Long Lease 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. 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 more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that AEW UK Long Lease REIT'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?
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. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past two years, AEW UK Long Lease REIT has increased its dividend at approximately 66% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid AEW UK Long Lease REIT? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that AEW UK Long Lease REIT is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, while it has some positive characteristics, we're not inclined to race out and buy AEW UK Long Lease REIT today.
Keen to explore more data on AEW UK Long Lease REIT's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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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