Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see AEW UK Long Lease REIT plc (LON:AEWL) 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.
AEW UK Long Lease REIT’s next dividend payment will be UK£0.01 per share. Last year, in total, the company distributed UK£0.06 to shareholders. Calculating the last year’s worth of payments shows that AEW UK Long Lease REIT has a trailing yield of 7.3% on the current share price of £0.7575. 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! As a result, readers should always check whether AEW UK Long Lease REIT has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. It paid out 80% 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. It could become a concern if earnings started to decline. 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. A useful secondary check can be to evaluate whether AEW UK Long Lease REIT generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It’s positive to see that AEW UK Long Lease REIT’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.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Earnings per share are growing at a rapid rate, yet the company is paying out more than three-quarters of its earnings.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. AEW UK Long Lease REIT has delivered 66% dividend growth per year on average over the past two years. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is AEW UK Long Lease REIT an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That’s why we’re glad to see AEW UK Long Lease REIT’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 80% and 80% respectively. To summarise, AEW UK Long Lease REIT looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Want to learn more about AEW UK Long Lease REIT? Here’s a visualisation of its historical rate of 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.