Here’s Why We’re Wary Of Buying Standard Life Investments Property Income Trust Limited’s (LON:SLI) For Its Upcoming Dividend

Standard Life Investments Property Income Trust Limited (LON:SLI) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 14th of November to receive the dividend, which will be paid on the 29th of November.

Standard Life Investments Property Income Trust’s next dividend payment will be UK£0.01 per share. Last year, in total, the company distributed UK£0.05 to shareholders. Calculating the last year’s worth of payments shows that Standard Life Investments Property Income Trust has a trailing yield of 5.3% on the current share price of £0.898. 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 Standard Life Investments Property Income Trust can afford its dividend, and if the dividend could grow.

View our latest analysis for Standard Life Investments Property Income Trust

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. It paid out 82% 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 worried about the risk of a drop in earnings. 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. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company’s ability to lift the dividend if there’s no growth.

It’s positive to see that Standard Life Investments Property Income 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 how much of its profit Standard Life Investments Property Income Trust paid out over the last 12 months.

LSE:SLI Historical Dividend Yield, November 10th 2019
LSE:SLI Historical Dividend Yield, November 10th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That’s why it’s not ideal to see Standard Life Investments Property Income Trust’s earnings per share have been shrinking at 5.0% a year over the previous five years.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last ten years, Standard Life Investments Property Income Trust has lifted its dividend by approximately 1.8% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid Standard Life Investments Property Income Trust? While earnings per share are shrinking, it’s encouraging to see that at least Standard Life Investments Property Income Trust’s dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.

Curious about whether Standard Life Investments Property Income Trust has been able to consistently generate growth? Here’s a chart of its historical revenue and earnings growth.

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.

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