Readers hoping to buy CorEnergy Infrastructure Trust, Inc. (NYSE:CORR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 15th of August, you won't be eligible to receive this dividend, when it is paid on the 30th of August.
CorEnergy Infrastructure Trust's next dividend payment will be US$0.75 per share. Last year, in total, the company distributed US$3.00 to shareholders. Last year's total dividend payments show that CorEnergy Infrastructure Trust has a trailing yield of 6.5% on the current share price of $46.44. If you buy this business for its dividend, you should have an idea of whether CorEnergy Infrastructure Trust's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. CorEnergy Infrastructure Trust paid out 103% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. A useful secondary check can be to evaluate whether CorEnergy Infrastructure Trust generated enough free cash flow to afford its dividend. It paid out 82% 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 CorEnergy Infrastructure Trust's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see CorEnergy Infrastructure Trust's earnings have been skyrocketing, up 23% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. CorEnergy Infrastructure Trust has seen its dividend decline 5.5% per annum on average over the past 10 years, which is not great to see. CorEnergy Infrastructure Trust is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Is CorEnergy Infrastructure Trust an attractive dividend stock, or better left on the shelf? CorEnergy Infrastructure Trust has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy CorEnergy Infrastructure Trust today.
Curious about whether CorEnergy Infrastructure Trust has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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