It Might Not Be A Great Idea To Buy Boston Pizza Royalties Income Fund (TSE:BPF.UN) For Its Next Dividend
Boston Pizza Royalties Income Fund (TSE:BPF.UN) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Boston Pizza Royalties Income Fund's shares before the 20th of June in order to receive the dividend, which the company will pay on the 30th of June.
The company's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.21 to shareholders. Calculating the last year's worth of payments shows that Boston Pizza Royalties Income Fund has a trailing yield of 7.4% on the current share price of CA$16.35. 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.
Check out our latest analysis for Boston Pizza Royalties Income Fund
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Boston Pizza Royalties Income Fund paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 72% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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?
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. So we're not too excited that Boston Pizza Royalties Income Fund's earnings are down 2.8% a year over the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Boston Pizza Royalties Income Fund dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Final Takeaway
Has Boston Pizza Royalties Income Fund got what it takes to maintain its dividend payments? 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. Bottom line: Boston Pizza Royalties Income Fund has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that being said, if you're still considering Boston Pizza Royalties Income Fund as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for Boston Pizza Royalties Income Fund that you should be aware of before investing in their shares.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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