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We Wouldn't Be Too Quick To Buy CatchMark Timber Trust, Inc. (NYSE:CTT) Before It Goes Ex-Dividend

Simply Wall St

It looks like CatchMark Timber Trust, Inc. (NYSE:CTT) is about to go ex-dividend in the next 2 days. If you purchase the stock on or after the 25th of November, you won't be eligible to receive this dividend, when it is paid on the 13th of December.

CatchMark Timber Trust's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.54 to shareholders. Based on the last year's worth of payments, CatchMark Timber Trust has a trailing yield of 4.6% on the current stock price of $11.67. If you buy this business for its dividend, you should have an idea of whether CatchMark Timber Trust's dividend is reliable and sustainable. So we need to investigate whether CatchMark Timber Trust can afford its dividend, and if the dividend could grow.

Check out our latest analysis for CatchMark Timber Trust

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. It paid out 91% 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 CatchMark Timber Trust 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. With the recent loss, it's important to check if the business generated enough cash to pay its 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. Over the past year it paid out 110% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

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

NYSE:CTT Historical Dividend Yield, November 22nd 2019

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. CatchMark Timber Trust reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, CatchMark Timber Trust has increased its dividend at approximately 3.5% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

We update our analysis on CatchMark Timber Trust every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid CatchMark Timber Trust? It's hard to get used to CatchMark Timber Trust paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Curious what other investors think of CatchMark Timber Trust? 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.

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.

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. Thank you for reading.