Ares Commercial Real Estate Corporation (NYSE:ACRE) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 27th of September to receive the dividend, which will be paid on the 15th of October.
Ares Commercial Real Estate's next dividend payment will be US$0.3 per share, and in the last 12 months, the company paid a total of US$1.3 per share. Looking at the last 12 months of distributions, Ares Commercial Real Estate has a trailing yield of approximately 8.4% on its current stock price of $15.72. 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 Ares Commercial Real Estate can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year Ares Commercial Real Estate paid out 94% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Ares Commercial Real Estate's earnings per share have been growing at 13% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ares Commercial Real Estate has delivered an average of 1.4% per year annual increase in its dividend, based on the past seven 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.
From a dividend perspective, should investors buy or avoid Ares Commercial Real Estate? We're not enthused to see Ares Commercial Real Estate's dividend was not well covered by earnings over the last year, although it is great to see earnings growing. We think there are likely better opportunities out there.
Curious what other investors think of Ares Commercial Real Estate? 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.
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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.