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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Soilbuild Business Space REIT (SGX:SV3U) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 24th of July to receive the dividend, which will be paid on the 23rd of August.
Soilbuild Businessce REIT's next dividend payment will be S$0.012 per share. Last year, in total, the company distributed S$0.053 to shareholders. Based on the last year's worth of payments, Soilbuild Businessce REIT has a trailing yield of 8.6% on the current stock price of SGD0.615. If you buy this business for its dividend, you should have an idea of whether Soilbuild Businessce REIT's dividend is reliable and sustainable. 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. Soilbuild Businessce REIT distributed an unsustainably high 114% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. For regulatory reasons, it's not uncommon to see REITs paying out around 100% of their earnings. However, we feel Soilbuild Businessce REIT's payout ratio is still too high, and we wonder if the dividend is being funded by debt. 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. Soilbuild Businessce REIT paid out more free cash flow than it generated - 114%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
As Soilbuild Businessce REIT's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Soilbuild Businessce REIT's earnings per share have been shrinking at 2.5% a year over the previous five years.
Soilbuild Businessce REIT also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 6 years, Soilbuild Businessce REIT has lifted its dividend by approximately 9.7% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Soilbuild Businessce REIT is already paying out 114% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Is Soilbuild Businessce REIT an attractive dividend stock, or better left on the shelf? Not only are earnings per share declining, but Soilbuild Businessce REIT is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Ever wonder what the future holds for Soilbuild Businessce REIT? See what the four 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.
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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.