Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Urstadt Biddle Properties Inc. (NYSE:UBA) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 3rd of October in order to receive the dividend, which the company will pay on the 18th of October.
Urstadt Biddle Properties's upcoming dividend is US$0.3 a share, following on from the last 12 months, when the company distributed a total of US$1.1 per share to shareholders. Last year's total dividend payments show that Urstadt Biddle Properties has a trailing yield of 4.6% on the current share price of $23.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Urstadt Biddle Properties paid out 102% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. While Urstadt Biddle Properties 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. A useful secondary check can be to evaluate whether Urstadt Biddle Properties generated enough free cash flow to afford its dividend. It paid out 80% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's good to see that while Urstadt Biddle Properties's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Urstadt Biddle Properties's earnings per share have risen 16% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Urstadt Biddle Properties has lifted its dividend by approximately 1.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Urstadt Biddle Properties is keeping back more of its profits to grow the business.
From a dividend perspective, should investors buy or avoid Urstadt Biddle Properties? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Urstadt Biddle Properties's dividend merits.
Curious what other investors think of Urstadt Biddle Properties? See what analysts 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.