CDL Hospitality Trusts (SGX:J85) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 6th of August will not receive the dividend, which will be paid on the 28th of August.
CDL Hospitality Trusts's next dividend payment will be S$0.042 per share, on the back of last year when the company paid a total of S$0.091 to shareholders. Based on the last year's worth of payments, CDL Hospitality Trusts stock has a trailing yield of around 5.6% on the current share price of SGD1.64. If you buy this business for its dividend, you should have an idea of whether CDL Hospitality Trusts's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Its dividend payout ratio is 87% 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 worried about the risk of a drop in 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. Over the last year, it paid out more than three-quarters (89%) 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 CDL Hospitality Trusts'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?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see CDL Hospitality Trusts's earnings per share have dropped 10% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CDL Hospitality Trusts has seen its dividend decline 2.5% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is CDL Hospitality Trusts worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least CDL Hospitality Trusts's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: CDL Hospitality Trusts has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Curious what other investors think of CDL Hospitality Trusts? See what analysts 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 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.