The Keg Royalties Income Fund (TSE:KEG.UN) Is About To Go Ex-Dividend, And It Pays A 8.0% Yield

It looks like The Keg Royalties Income Fund (TSE:KEG.UN) is about to go ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Keg Royalties Income Fund's shares on or after the 20th of February will not receive the dividend, which will be paid on the 29th of February.

The company's next dividend payment will be CA$0.0946 per share, and in the last 12 months, the company paid a total of CA$1.14 per share. Looking at the last 12 months of distributions, Keg Royalties Income Fund has a trailing yield of approximately 8.0% on its current stock price of CA$14.26. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Keg Royalties Income Fund can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Keg 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. Keg Royalties Income Fund is paying out an acceptable 56% of its profit, a common payout level among most companies. 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 distributed 47% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Keg 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. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Keg Royalties Income Fund earnings per share are up 6.0% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Keg Royalties Income Fund has delivered an average of 1.7% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Has Keg Royalties Income Fund got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Keg Royalties Income Fund paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

In light of that, while Keg Royalties Income Fund has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Keg Royalties Income Fund and understanding them should be part of your investment process.

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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.