Don't Race Out To Buy Boston Pizza Royalties Income Fund (TSE:BPF.UN) Just Because It's Going Ex-Dividend

It looks like Boston Pizza Royalties Income Fund (TSE:BPF.UN) is about to go ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Boston Pizza Royalties Income Fund's shares before the 20th of November in order to receive the dividend, which the company will pay on the 30th of November.

The company's next dividend payment will be CA$0.11 per share. Last year, in total, the company distributed CA$1.28 to shareholders. Calculating the last year's worth of payments shows that Boston Pizza Royalties Income Fund has a trailing yield of 8.2% on the current share price of CA$15.68. If you buy this business for its dividend, you should have an idea of whether Boston Pizza Royalties Income Fund's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Boston Pizza Royalties Income Fund

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. Boston Pizza Royalties Income Fund distributed an unsustainably high 141% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 76% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Boston Pizza Royalties Income Fund's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit Boston Pizza Royalties Income Fund paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Boston Pizza Royalties Income Fund earnings per share are up 2.1% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Boston Pizza Royalties Income Fund has delivered 0.9% dividend growth per year on average over the past 10 years.

To Sum It Up

Is Boston Pizza Royalties Income Fund worth buying for its dividend? Earnings per share have not grown all that much, and the company is paying out an uncomfortably high percentage of its income. Fortunately it paid out a lower percentage of its cash flow. It's not that we think Boston Pizza Royalties Income Fund is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Boston Pizza Royalties Income Fund and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for Boston Pizza Royalties Income Fund that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.