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We Wouldn't Be Too Quick To Buy Schroder Real Estate Investment Trust Limited (LON:SREI) Before It Goes Ex-Dividend

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Schroder Real Estate Investment Trust Limited (LON:SREI) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 1st of August to receive the dividend, which will be paid on the 16th of August.

Schroder Real Estate Investment Trust's next dividend payment will be UK£0.0065 per share. Last year, in total, the company distributed UK£0.026 to shareholders. Based on the last year's worth of payments, Schroder Real Estate Investment Trust has a trailing yield of 4.6% on the current stock price of £0.57. 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 Schroder Real Estate Investment Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Schroder Real Estate Investment Trust paid out 83% of its earnings, which is high but within a normal range for the majority of companies. REITs often pay out as much as 100% of their income, so we don't think a high payout ratio 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. Schroder paid out 100% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

Cash is slightly more important than profit from a dividend perspective, which is why it's not ideal that Schroder Real Estate Investment Trust's payouts were not well covered free cash flow over the past year.

Click here to see how much of its profit Schroder Real Estate Investment Trust paid out over the last 12 months.

LSE:SREI Historical Dividend Yield, July 28th 2019
LSE:SREI Historical Dividend Yield, July 28th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by Schroder Real Estate Investment Trust's 12% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Schroder Real Estate Investment Trust's dividend payments per share have declined at 3.0% per year on average over the past 10 years, which is uninspiring. 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 Schroder Real Estate Investment Trust an attractive dividend stock, or better left on the shelf? While dividends were covered by earnings, earnings per share are declining, and Schroder Real Estate Investment Trust is paying out a high percentage of its cashflow to shareholders as dividends. This is not a great combination that can often suggest a risk of the dividend being cut in the future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Keen to explore more data on Schroder Real Estate Investment Trust's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

An earlier version of this article stated that Schroder was paying out more than 100% of its income as profits. We apologise for the error. 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.