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It looks like Franklin Street Properties Corp. (NYSEMKT:FSP) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 18th of July, you won't be eligible to receive this dividend, when it is paid on the 8th of August.
Franklin Street Properties's next dividend payment will be US$0.09 per share. Last year, in total, the company distributed US$0.36 to shareholders. Looking at the last 12 months of distributions, Franklin Street Properties has a trailing yield of approximately 4.7% on its current stock price of $7.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Franklin Street Properties has been able to grow its dividends, or if the dividend might be cut.
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. Fortunately Franklin Street Properties's payout ratio is modest, at just 39% of profit. While Franklin Street 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. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (52%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Franklin Street Properties'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 shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Franklin Street Properties's earnings per share have fallen at approximately 12% a year over the previous 5 years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Franklin Street Properties has seen its dividend decline 7.2% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
To Sum It Up
Is Franklin Street Properties worth buying for its dividend? Earnings per share have fallen significantly, although at least Franklin Street Properties paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. In summary, it's hard to get excited about Franklin Street Properties from a dividend perspective.
Wondering what the future holds for Franklin Street Properties? See what the two analysts we track 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 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.