It looks like BRT Apartments Corp. (NYSE:BRT) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 24th of September will not receive the dividend, which will be paid on the 10th of October.
BRT Apartments's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.8 per share to shareholders. Based on the last year's worth of payments, BRT Apartments stock has a trailing yield of around 5.9% on the current share price of $14.98. 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 check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be worried about the risk of a drop in earnings. 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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that BRT Apartments'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?
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see BRT Apartments has grown its earnings rapidly, up 38% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past two years, BRT Apartments has increased its dividend at approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Has BRT Apartments got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that BRT Apartments is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Ever wonder what the future holds for BRT Apartments? See what the five analysts we track 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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