Readers hoping to buy Centuria Metropolitan REIT (ASX:CMA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 27th of September in order to be eligible for this dividend, which will be paid on the 30th of October.
Centuria Metropolitan REIT's upcoming dividend is AU$0.04 a share, following on from the last 12 months, when the company distributed a total of AU$0.2 per share to shareholders. Last year's total dividend payments show that Centuria Metropolitan REIT has a trailing yield of 5.8% on the current share price of A$2.99. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. While Centuria Metropolitan REIT 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 (92%) 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 Centuria Metropolitan REIT'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?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Centuria Metropolitan REIT's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
We'd also point out that Centuria Metropolitan REIT issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, Centuria Metropolitan REIT has increased its dividend at approximately 14% a year on average.
Has Centuria Metropolitan REIT got what it takes to maintain its dividend payments? While earnings per share are flat, at least Centuria Metropolitan REIT has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Centuria Metropolitan REIT.
Curious what other investors think of Centuria Metropolitan REIT? 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.
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