It looks like Ashford Hospitality Trust, Inc. (NYSE:AHT) is about to go ex-dividend in the next 4 days. You can purchase shares before the 27th of September in order to receive the dividend, which the company will pay on the 15th of October.
Ashford Hospitality Trust’s upcoming dividend is US$0.06 a share, following on from the last 12 months, when the company distributed a total of US$0.2 per share to shareholders. Based on the last year’s worth of payments, Ashford Hospitality Trust stock has a trailing yield of around 7.4% on the current share price of $3.24. 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 check whether the dividend payments are covered, and if earnings are 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. Ashford Hospitality Trust distributed an unsustainably high 121% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut. It’s not unusual to see REITs distributing all of their income to shareholders. Yet a payout ratio this high we feel is still cause for concern as it suggests the dividend is being funded from cash on the balance sheet, or by borrowing. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Ashford Hospitality Trust didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (56%) of its free cash flow in the past year, which is within an average range for most companies.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Ashford Hospitality Trust reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Ashford Hospitality Trust has seen its dividend decline 5.5% per annum on average over the past nine years, which is not great to see. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Remember, you can always get a snapshot of Ashford Hospitality Trust’s financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is Ashford Hospitality Trust an attractive dividend stock, or better left on the shelf? It’s hard to get used to Ashford Hospitality Trust paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Ashford Hospitality Trust has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for Ashford Hospitality Trust? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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