Don't Buy Postal Realty Trust, Inc. (NYSE:PSTL) For Its Next Dividend Without Doing These Checks
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Postal Realty Trust, Inc. (NYSE:PSTL) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 14th of November to receive the dividend, which will be paid on the 2nd of December.
Postal Realty Trust's next dividend payment will be US$0.1 per share, and in the last 12 months, the company paid a total of US$0.5 per share. Based on the last year's worth of payments, Postal Realty Trust has a trailing yield of 3.5% on the current stock price of $16.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Postal Realty Trust
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. Postal Realty Trust distributed an unsustainably high 131% 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 Postal Realty Trust's payout ratio is still too high, and we wonder if the dividend is being funded by debt. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 182% of its free cash flow as dividends, which is uncomfortably 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.
Cash is slightly more important than profit from a dividend perspective, but given Postal Realty Trust's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke.
Postal Realty Trust 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. It's hard to grow dividends per share when a company keeps creating new shares.
This is Postal Realty Trust's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
To Sum It Up
Is Postal Realty Trust an attractive dividend stock, or better left on the shelf? Postal Realty Trust is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, at the same time as its earnings per share are struggling to grow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Curious what other investors think of Postal Realty Trust? See what analysts 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 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.
