Cedar Realty Trust, Inc. (NYSE:CDR) stock is about to trade ex-dividend in 4 days time. Investors can purchase shares before the 8th of August in order to be eligible for this dividend, which will be paid on the 20th of August.
Cedar Realty Trust's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.20 to shareholders. Based on the last year's worth of payments, Cedar Realty Trust stock has a trailing yield of around 7.6% on the current share price of $2.62. 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! As a result, readers should always check whether Cedar Realty Trust has been able to grow its dividends, or if the dividend might be cut.
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. Cedar Realty Trust distributed an unsustainably high 149% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. It's not unusual to see REITs distributing all of their income to shareholders. Yet a payout ratio this high we feel is still cause for concern as it suggests the dividend is being funded from cash on the balance sheet, or by borrowing. A useful secondary check can be to evaluate whether Cedar Realty Trust generated enough free cash flow to afford its dividend. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Cedar Realty Trust's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Cedar Realty Trust's earnings per share have fallen at approximately 21% a year over the previous 5 years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cedar Realty Trust's dividend payments per share have declined at 14% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Should investors buy Cedar Realty Trust for the upcoming dividend? Earnings per share have been shrinking in recent times. What's more, Cedar Realty Trust is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Wondering what the future holds for Cedar Realty Trust? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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