It Might Be Better To Avoid Slate Retail REIT's (TSE:SRT.UN) Upcoming 0.5% Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Slate Retail REIT (TSE:SRT.UN) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of July, you won't be eligible to receive this dividend, when it is paid on the 15th of August.
Slate Retail REIT's upcoming dividend is US$0.071 a share, following on from the last 12 months, when the company distributed a total of US$0.85 per share to shareholders. Calculating the last year's worth of payments shows that Slate Retail REIT has a trailing yield of 8.6% on the current share price of CA$13. 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 investigate whether Slate Retail REIT can afford its dividend, and if the dividend could grow.
See our latest analysis for Slate Retail REIT
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. Slate Retail REIT paid out 65% of its earnings to investors last year, a normal payout level for most businesses. While Slate Retail REIT 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (73%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Slate Retail REIT was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 5 years ago, Slate Retail REIT has lifted its dividend by approximately 3.5% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Remember, you can always get a snapshot of Slate Retail REIT's financial health, by checking our visualisation of its financial health, here.
Final Takeaway
Is Slate Retail REIT worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Slate Retail REIT has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for Slate Retail REIT? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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 editorial-team@simplywallst.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.
