Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Empire State Realty Trust, Inc. (NYSE:ESRT) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 13th of September, you won't be eligible to receive this dividend, when it is paid on the 30th of September.
Empire State Realty Trust's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.42 per share. Calculating the last year's worth of payments shows that Empire State Realty Trust has a trailing yield of 3.0% on the current share price of $14.21. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Empire State Realty Trust has been able to grow its dividends, or if the dividend might be cut.
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. That's why it's good to see Empire State Realty Trust paying out a modest 27% of its earnings. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. 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. Fortunately, it paid out only 29% of its free cash flow in the past year.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Empire State Realty Trust's earnings per share have dropped 16% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
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, 6 years ago, Empire State Realty Trust has lifted its dividend by approximately 3.6% a year on average.
Is Empire State Realty Trust worth buying for its dividend? Empire State Realty Trust has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about Empire State Realty Trust from a dividend perspective.
Curious what other investors think of Empire State Realty Trust? See what analysts 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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If you spot an error that warrants correction, please contact the editor at email@example.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.