We Wouldn't Be Too Quick To Buy Blackwall Property Trust (ASX:BWR) Before It Goes Ex-Dividend

By
Simply Wall St
Published
September 11, 2019

It looks like Blackwall Property Trust (ASX:BWR) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 16th of September will not receive this dividend, which will be paid on the 8th of October.

Blackwall Property Trust's next dividend payment will be AU$0.035 per share, on the back of last year when the company paid a total of AU$0.07 to shareholders. Based on the last year's worth of payments, Blackwall Property Trust has a trailing yield of 5.5% on the current stock price of A$1.28. 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 Blackwall Property Trust can afford its dividend, and if the dividend could grow.

View our latest analysis for Blackwall Property Trust

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 92% 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. While Blackwall Property Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. 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. It paid out an unsustainably high 248% of its free cash flow as dividends over the past 12 months, which is worrying. Our definition of free cash flow excludes cash generated from asset sales, so since Blackwall Property Trust is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.

While Blackwall Property Trust's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Blackwall Property Trust to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit Blackwall Property Trust paid out over the last 12 months.

ASX:BWR Historical Dividend Yield, September 11th 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. Readers will understand then, why we're concerned to see Blackwall Property Trust's earnings per share have dropped 27% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Blackwall Property Trust's dividend payments per share have declined at 12% per year on average over the past six years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Blackwall Property Trust worth buying for its dividend? Blackwall Property Trust had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Bottom line: Blackwall Property Trust has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Curious about whether Blackwall Property Trust has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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.

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