Clipper Realty Inc. (NYSE:CLPR) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 22nd of November will not receive this dividend, which will be paid on the 3rd of December.
Clipper Realty's upcoming dividend is US$0.095 a share, following on from the last 12 months, when the company distributed a total of US$0.38 per share to shareholders. Last year's total dividend payments show that Clipper Realty has a trailing yield of 4.0% on the current share price of $9.52. 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 check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see Clipper Realty paying out a modest 43% of its earnings. While Clipper Realty 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. 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. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Clipper Realty reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Clipper Realty has delivered an average of 3.8% per year annual increase in its dividend, based on the past three years of dividend payments.
To Sum It Up
Is Clipper Realty an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. To summarise, Clipper Realty looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Want to learn more about Clipper Realty? Here's a visualisation of its historical rate of revenue and earnings growth.
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