Stock Analysis

Keg Royalties Income Fund (TSE:KEG.UN) Will Pay A Dividend Of CA$0.035

  •  Updated
TSX:KEG.UN
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The board of The Keg Royalties Income Fund (TSE:KEG.UN) has announced that it will pay a dividend on the 30th of June, with investors receiving CA$0.035 per share. Based on this payment, the dividend yield will be 3.2%, which is fairly typical for the industry.

View our latest analysis for Keg Royalties Income Fund

Keg Royalties Income Fund's Distributions May Be Difficult To Sustain

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. While Keg Royalties Income Fund is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Assuming the trend of the last few years continues, EPS will grow by 19.6% over the next 12 months. It's nice to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

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TSX:KEG.UN Historic Dividend June 17th 2021

Keg Royalties Income Fund's Track Record Isn't Great

The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. Since 2011, the first annual payment was CA$1.28, compared to the most recent full-year payment of CA$0.42. This works out to a decline of approximately 67% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. We are encouraged to see that Keg Royalties Income Fund has grown earnings per share at 20% per year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Keg Royalties Income Fund has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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