Four Days Left To Buy Diversified Royalty Corp. (TSE:DIV) Before The Ex-Dividend Date
Diversified Royalty Corp. (TSE:DIV) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Diversified Royalty's shares before the 14th of March in order to receive the dividend, which the company will pay on the 31st of March.
The company's next dividend payment will be CA$0.02 per share, on the back of last year when the company paid a total of CA$0.23 to shareholders. Looking at the last 12 months of distributions, Diversified Royalty has a trailing yield of approximately 7.3% on its current stock price of CA$3.28. If you buy this business for its dividend, you should have an idea of whether Diversified Royalty's dividend is reliable and sustainable. So we need to investigate whether Diversified Royalty can afford its dividend, and if the dividend could grow.
View our latest analysis for Diversified Royalty
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Diversified Royalty paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 85% 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 good to see that while Diversified Royalty's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Diversified Royalty's earnings per share have been growing at 16% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Diversified Royalty has delivered an average of 3.1% per year annual increase in its dividend, based on the past eight years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Is Diversified Royalty an attractive dividend stock, or better left on the shelf? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Diversified Royalty's dividend merits.
However if you're still interested in Diversified Royalty as a potential investment, you should definitely consider some of the risks involved with Diversified Royalty. For example, we've found 3 warning signs for Diversified Royalty (2 are concerning!) that deserve your attention before investing in the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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