Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Allied Properties Real Estate Investment Trust (TSE:AP.UN) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 30th of July in order to receive the dividend, which the company will pay on the 15th of August.
Allied Properties Real Estate Investment Trust’s upcoming dividend is CA$0.13 a share, following on from the last 12 months, when the company distributed a total of CA$1.60 per share to shareholders. Looking at the last 12 months of distributions, Allied Properties Real Estate Investment Trust has a trailing yield of approximately 3.2% on its current stock price of CA$49.14. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Allied Properties Real Estate Investment Trust can afford its dividend, and if the dividend could grow.
View our latest analysis for Allied Properties Real Estate Investment Trust
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Allied Properties Real Estate Investment Trust paid out more than half (74%) 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. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.
It’s positive to see that Allied Properties Real Estate Investment 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Allied Properties Real Estate Investment Trust’s earnings per share have risen 11% per annum over the last five years. Allied Properties Real Estate 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.
Allied Properties Real Estate Investment Trust also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Allied Properties Real Estate Investment Trust has lifted its dividend by approximately 1.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Allied Properties Real Estate Investment Trust is keeping back more of its profits to grow the business.
The Bottom Line
Should investors buy Allied Properties Real Estate Investment Trust for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we’d also note that Allied Properties Real Estate 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. Overall, it’s not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Wondering what the future holds for Allied Properties Real Estate Investment Trust? See what the three analysts we track 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.
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.