Boston Pizza Royalties Income Fund's (TSE:BPF.UN) Dividend Will Be Increased To CA$0.10
Boston Pizza Royalties Income Fund (TSE:BPF.UN) has announced that it will be increasing its dividend from last year's comparable payment on the 31st of August to CA$0.10. This will take the dividend yield to an attractive 7.6%, providing a nice boost to shareholder returns.
View our latest analysis for Boston Pizza Royalties Income Fund
Boston Pizza Royalties Income Fund's Earnings Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Boston Pizza Royalties Income Fund was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 88% indicates it is more focused on returning cash to shareholders than growing the business.
EPS is set to fall by 6.5% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 65%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CA$1.1 in 2012 to the most recent total annual payment of CA$1.20. Its dividends have grown at less than 1% per annum over this time frame. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Boston Pizza Royalties Income Fund May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Boston Pizza Royalties Income Fund's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
An additional note is that the company has been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On Boston Pizza Royalties Income Fund's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Boston Pizza Royalties Income Fund's payments are rock solid. While Boston Pizza Royalties Income Fund is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Boston Pizza Royalties Income Fund (1 shouldn't be ignored!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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