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Why You Might Be Interested In Choice Properties Real Estate Investment Trust (TSE:CHP.UN) For Its Upcoming Dividend

Simply Wall St

Choice Properties Real Estate Investment Trust (TSE:CHP.UN) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 27th of September in order to receive the dividend, which the company will pay on the 15th of October.

Choice Properties Real Estate Investment Trust's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.7 per share to shareholders. Looking at the last 12 months of distributions, Choice Properties Real Estate Investment Trust has a trailing yield of approximately 5.1% on its current stock price of CA$14.4. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Choice Properties Real Estate Investment Trust

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. Fortunately Choice Properties Real Estate Investment Trust's payout ratio is modest, at just 31% of profit. 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The good news is it paid out just 25% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

TSX:CHP.UN Historical Dividend Yield, September 22nd 2019

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. Choice Properties Real Estate Investment Trust reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Choice Properties Real Estate Investment Trust has delivered an average of 2.2% per year annual increase in its dividend, based on the past six years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Choice Properties Real Estate Investment Trust is keeping back more of its profits to grow the business.

Remember, you can always get a snapshot of Choice Properties Real Estate Investment Trust's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Choice Properties Real Estate Investment Trust worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall we think this is an attractive combination and worthy of further research.

Curious what other investors think of Choice Properties Real Estate Investment Trust? 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.

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 editorial-team@simplywallst.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.