Garda Diversified Property Fund (ASX:GDF) is about to trade ex-dividend in the next 2 days. Investors can purchase shares before the 18th of November in order to be eligible for this dividend, which will be paid on the 4th of December.
Garda Diversified Property Fund's next dividend payment will be AU$0.015 per share, on the back of last year when the company paid a total of AU$0.09 to shareholders. Calculating the last year's worth of payments shows that Garda Diversified Property Fund has a trailing yield of 6.2% on the current share price of A$1.445. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Garda Diversified Property Fund can afford its dividend, and if the dividend could grow.
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. Last year, Garda Diversified Property Fund paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. While Garda Diversified Property Fund 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 65% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Garda Diversified Property Fund'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Garda Diversified Property Fund's earnings have been skyrocketing, up 58% per annum for the past five years.
We'd also point out that Garda Diversified Property Fund 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. Garda Diversified Property Fund has delivered an average of 46% per year annual increase in its dividend, based on the past four years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Garda Diversified Property Fund an attractive dividend stock, or better left on the shelf? 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. In summary, while it has some positive characteristics, we're not inclined to race out and buy Garda Diversified Property Fund today.
Wondering what the future holds for Garda Diversified Property Fund? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.