Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see New England Realty Associates Limited Partnership (NYSEMKT:NEN) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 18th of September in order to receive the dividend, which the company will pay on the 30th of September.
New England Realty Associates Limited Partnership’s next dividend payment will be US$0.32 per share, and in the last 12 months, the company paid a total of US$1.28 per share. Last year’s total dividend payments show that New England Realty Associates Limited Partnership has a trailing yield of 2.6% on the current share price of $49.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. It paid out 77% 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. A useful secondary check can be to evaluate whether New England Realty Associates Limited Partnership generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That’s why it’s comforting to see New England Realty Associates Limited Partnership’s earnings have been skyrocketing, up 44% per annum for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, New England Realty Associates Limited Partnership has lifted its dividend by approximately 3.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because New England Realty Associates Limited Partnership is keeping back more of its profits to grow the business.
Is New England Realty Associates Limited Partnership worth buying for its dividend? We like New England Realty Associates Limited Partnership’s growing earnings per share and the fact that – while its payout ratio is around average – it paid out a lower percentage of its cash flow. New England Realty Associates Limited Partnership looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
On that note, you’ll want to research what risks New England Realty Associates Limited Partnership is facing. Be aware that New England Realty Associates Limited Partnership is showing 2 warning signs in our investment analysis, and 1 of those doesn’t sit too well with us…
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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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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