Physicians Realty Trust (NYSE:DOC) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 2nd of October will not receive the dividend, which will be paid on the 18th of October.
Physicians Realty Trust's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.9 per share to shareholders. Last year's total dividend payments show that Physicians Realty Trust has a trailing yield of 5.2% on the current share price of $17.78. 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! As a result, readers should always check whether Physicians Realty Trust has been able to grow its dividends, or if the dividend might be cut.
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. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. While Physicians Realty Trust 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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (83%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that Physicians Realty Trust's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Physicians Realty Trust has grown its earnings rapidly, up 44% a year for the past five years. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Physicians Realty Trust's dividend payments are effectively flat on where they were six years ago.
The Bottom Line
Has Physicians Realty Trust got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Physicians Realty Trust is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about Physicians Realty Trust from a dividend perspective.
Curious what other investors think of Physicians 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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