Stock Analysis

The Keg Royalties Income Fund (TSE:KEG.UN) Stock Goes Ex-Dividend In Just Four Days

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It looks like The Keg Royalties Income Fund (TSE:KEG.UN) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Keg Royalties Income Fund's shares on or after the 20th of March, you won't be eligible to receive the dividend, when it is paid on the 31st of March.

The company's next dividend payment will be CA$0.095 per share. Last year, in total, the company distributed CA$1.14 to shareholders. Last year's total dividend payments show that Keg Royalties Income Fund has a trailing yield of 7.1% on the current share price of CA$15.88. If you buy this business for its dividend, you should have an idea of whether Keg Royalties Income Fund's dividend is reliable and sustainable. 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 usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. An unusually high payout ratio of 268% of its profit suggests something is happening other than the usual distribution of profits to shareholders. A useful secondary check can be to evaluate whether Keg Royalties Income Fund generated enough free cash flow to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Keg Royalties Income Fund fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. 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 Keg Royalties Income Fund paid out over the last 12 months.

TSX:KEG.UN Historic Dividend March 15th 2023

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Keg Royalties Income Fund has grown its earnings rapidly, up 31% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Keg Royalties Income Fund has increased its dividend at approximately 1.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Keg Royalties Income Fund is keeping back more of its profits to grow the business.

Final Takeaway

Has Keg Royalties Income Fund got what it takes to maintain its dividend payments? Keg Royalties Income Fund has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. To summarise, Keg Royalties Income Fund looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Keg Royalties Income Fund as a potential investment, you should definitely consider some of the risks involved with Keg Royalties Income Fund. For example, we've found 3 warning signs for Keg Royalties Income Fund (2 are a bit concerning!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Keg Royalties Income Fund is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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