Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see First Capital Realty Inc. (TSE:FCR) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 26th of September will not receive this dividend, which will be paid on the 17th of October.
First Capital Realty's next dividend payment will be CA$0.2 per share. Last year, in total, the company distributed CA$0.9 to shareholders. Based on the last year's worth of payments, First Capital Realty has a trailing yield of 3.9% on the current stock price of CA$22.12. 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! So we need to investigate whether First Capital Realty can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. First Capital Realty is paying out an acceptable 62% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether First Capital Realty generated enough free cash flow to afford its dividend. It paid out 78% 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 First Capital Realty'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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at First Capital Realty, with earnings per share up 5.9% on average over the last five years. Decent historical earnings per share growth suggests First Capital Realty has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. First Capital Realty has delivered 0.7% dividend growth per year on average over the past ten years.
To Sum It Up
Has First Capital Realty got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and First Capital Realty paid out a bit over half of its earnings and free cash flow last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy First Capital Realty today.
Curious what other investors think of First Capital Realty? See what analysts 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 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.