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It Might Not Be A Great Idea To Buy Exantas Capital Corp. (NYSE:XAN) For Its Next Dividend

Simply Wall St

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Exantas Capital Corp. (NYSE:XAN) is about to go ex-dividend in just 4 days. You can purchase shares before the 27th of September in order to receive the dividend, which the company will pay on the 25th of October.

Exantas Capital's next dividend payment will be US$0.3 per share, on the back of last year when the company paid a total of US$0.9 to shareholders. Based on the last year's worth of payments, Exantas Capital stock has a trailing yield of around 8.6% on the current share price of $11.66. 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 Exantas Capital can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Exantas Capital

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. Last year, Exantas Capital paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

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:XAN Historical Dividend Yield, September 22nd 2019

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 Exantas Capital's earnings per share have dropped 9.6% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Exantas Capital's dividend payments per share have declined at 17% per year on average over the past ten years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Should investors buy Exantas Capital for the upcoming dividend? Earnings per share are in decline and Exantas Capital is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Exantas Capital 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 Exantas Capital? See what the two 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 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.