Don't Buy Ascendas Real Estate Investment Trust (SGX:A17U) For Its Next Dividend Without Doing These Checks
It looks like Ascendas Real Estate Investment Trust (SGX:A17U) is about to go ex-dividend in the next 3 days. You can purchase shares before the 8th of November in order to receive the dividend, which the company will pay on the 3rd of December.
Ascendas Real Estate Investment Trust's next dividend payment will be S$0.08 per share. Last year, in total, the company distributed S$0.2 to shareholders. Based on the last year's worth of payments, Ascendas Real Estate Investment Trust stock has a trailing yield of around 5.1% on the current share price of SGD3.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Ascendas Real Estate Investment Trust can afford its dividend, and if the dividend could grow.
View our latest analysis for Ascendas Real Estate Investment Trust
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. 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 77% 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 encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Ascendas Real Estate Investment Trust's earnings are down 3.6% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ascendas Real Estate Investment Trust has delivered an average of 0.5% per year annual increase in its dividend, based on the past ten years of dividend payments.
Final Takeaway
Is Ascendas Real Estate Investment Trust an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least Ascendas Real Estate Investment Trust's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Ascendas Real Estate Investment Trust has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for Ascendas Real Estate Investment Trust? See what the ten 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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
