Readers hoping to buy H&R Real Estate Investment Trust (TSE:HR.UN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 15th of August will not receive this dividend, which will be paid on the 30th of August.
H&R Real Estate Investment Trust's next dividend payment will be CA$0.12 per share, on the back of last year when the company paid a total of CA$1.38 to shareholders. Based on the last year's worth of payments, H&R Real Estate Investment Trust stock has a trailing yield of around 6.0% on the current share price of CA$22.89. If you buy this business for its dividend, you should have an idea of whether H&R Real Estate Investment Trust's dividend is reliable and sustainable. As a result, readers should always check whether H&R Real Estate Investment Trust has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. H&R Real Estate Investment Trust is paying out an acceptable 75% of its profit, a common payout level among 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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that H&R Real Estate Investment Trust'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 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. H&R Real Estate Investment Trust's earnings per share have fallen at approximately 6.1% a year over the previous 5 years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the H&R Real Estate Investment Trust dividends are largely the same as they were ten years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
To Sum It Up
Has H&R Real Estate Investment Trust got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least H&R Real Estate Investment Trust's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think H&R Real Estate Investment Trust is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Ever wonder what the future holds for H&R Real Estate Investment Trust? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 firstname.lastname@example.org. 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.