CyrusOne Inc. (NASDAQ:CONE) stock is about to trade ex-dividend in 3 days time. You can purchase shares before the 26th of September in order to receive the dividend, which the company will pay on the 11th of October.
CyrusOne's upcoming dividend is US$0.5 a share, following on from the last 12 months, when the company distributed a total of US$2.0 per share to shareholders. Based on the last year's worth of payments, CyrusOne has a trailing yield of 2.6% on the current stock price of $77.57. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. CyrusOne paid out more than half (63%) of its earnings last year, which is a regular payout ratio for most companies. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. 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 paid out more than half (60%) of its free cash flow in the past year, which is within an average range for most companies.
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. CyrusOne was unprofitable last year, but at least the general trend suggests its earnings have 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 CyrusOne 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last seven years, CyrusOne has lifted its dividend by approximately 18% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is CyrusOne worth buying for its dividend? It's hard to get used to CyrusOne paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. In summary, it's hard to get excited about CyrusOne from a dividend perspective.
Ever wonder what the future holds for CyrusOne? See what the 16 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.