It looks like Federal Realty Investment Trust (NYSE:FRT) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 20th of September, you won’t be eligible to receive this dividend, when it is paid on the 15th of October.
Federal Realty Investment Trust’s next dividend payment will be US$1.05 per share, on the back of last year when the company paid a total of US$4.08 to shareholders. Last year’s total dividend payments show that Federal Realty Investment Trust has a trailing yield of 3.0% on the current share price of $135.05. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
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. Federal Realty Investment Trust paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. 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. 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 72% of its free cash flow as dividends, within the usual range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Federal Realty Investment Trust’s earnings per share have been growing at 10% a year for the past five years. Federal Realty Investment Trust is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Federal Realty Investment Trust has delivered an average of 4.6% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Should investors buy Federal Realty Investment Trust for the upcoming dividend? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that Federal Realty Investment Trust is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, Federal Realty Investment Trust looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Wondering what the future holds for Federal Realty Investment Trust? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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