Ascott Residence Trust (SGX:A68U) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 6th of August, you won't be eligible to receive this dividend, when it is paid on the 29th of August.
Ascott Residence Trust's next dividend payment will be S$0.034 per share. Last year, in total, the company distributed S$0.074 to shareholders. Calculating the last year's worth of payments shows that Ascott Residence Trust has a trailing yield of 5.6% on the current share price of SGD1.32. If you buy this business for its dividend, you should have an idea of whether Ascott Residence Trust's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Ascott Residence Trust paid out 65% of its earnings to investors last year, a normal payout level for most businesses. While Ascott Residence Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. A useful secondary check can be to evaluate whether Ascott Residence Trust generated enough free cash flow to afford its dividend. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Ascott Residence Trust's earnings per share have dropped 5.5% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Ascott Residence Trust's dividend payments per share have declined at 1.7% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Is Ascott Residence Trust worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think Ascott Residence Trust is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Wondering what the future holds for Ascott Residence Trust? See what the nine 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.
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.