We Wouldn't Be Too Quick To Buy Frasers Hospitality Trust (SGX:ACV) Before It Goes Ex-Dividend
Frasers Hospitality Trust (SGX:ACV) stock is about to trade ex-dividend in 3 days time. You will need to purchase shares before the 6th of November to receive the dividend, which will be paid on the 27th of December.
Frasers Hospitality Trust's upcoming dividend is S$0.02 a share, following on from the last 12 months, when the company distributed a total of S$0.04 per share to shareholders. Based on the last year's worth of payments, Frasers Hospitality Trust stock has a trailing yield of around 5.9% on the current share price of SGD0.735. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Frasers Hospitality 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. Its dividend payout ratio is 84% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline. 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. A useful secondary check can be to evaluate whether Frasers Hospitality Trust generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (84%) 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 Frasers Hospitality Trust'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Frasers Hospitality Trust's earnings per share have fallen at approximately 10% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Frasers Hospitality Trust's dividend payments per share have declined at 10% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Should investors buy Frasers Hospitality Trust for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least Frasers Hospitality Trust's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not that we think Frasers Hospitality Trust is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
Curious what other investors think of Frasers Hospitality Trust? See what analysts 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.
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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.
