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It Might Not Be A Great Idea To Buy Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) For Its Next Dividend

Simply Wall St

Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 27th of September to receive the dividend, which will be paid on the 15th of October.

Apollo Commercial Real Estate Finance's next dividend payment will be US$0.5 per share. Last year, in total, the company distributed US$1.8 to shareholders. Based on the last year's worth of payments, Apollo Commercial Real Estate Finance stock has a trailing yield of around 9.4% on the current share price of $19.54. If you buy this business for its dividend, you should have an idea of whether Apollo Commercial Real Estate Finance's dividend is reliable and sustainable. So we need to investigate whether Apollo Commercial Real Estate Finance can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Apollo Commercial Real Estate Finance

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. Apollo Commercial Real Estate Finance distributed an unsustainably high 116% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:ARI Historical Dividend Yield, September 22nd 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Apollo Commercial Real Estate Finance earnings per share are up 4.8% per annum over the last five years.

Apollo Commercial Real Estate Finance also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Apollo Commercial Real Estate Finance has delivered an average of 2.8% per year annual increase in its dividend, based on the past ten years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Apollo Commercial Real Estate Finance an attractive dividend stock, or better left on the shelf? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 116% of last year's earnings. Apollo Commercial Real Estate Finance doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Ever wonder what the future holds for Apollo Commercial Real Estate Finance? See what the four 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.