SIR Royalty Income Fund (TSE:SRV.UN) Is Due To Pay A Dividend Of CA$0.10

SIR Royalty Income Fund (TSE:SRV.UN) will pay a dividend of CA$0.10 on the 28th of November. This means the annual payment is 8.5% of the current stock price, which is above the average for the industry.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

SIR Royalty Income Fund's Payment Could Potentially Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS could expand by 36.9% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

See our latest analysis for SIR Royalty Income Fund

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CA$1.14 in 2015 to the most recent total annual payment of CA$1.20. Dividend payments have been growing, but very slowly over the period. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

SIR Royalty Income Fund Might Find It Hard To Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that SIR Royalty Income Fund has grown earnings per share at 37% per year over the past five years. Although earnings per share is up nicely SIR Royalty Income Fund is paying out 121% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

SIR Royalty Income Fund's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, SIR Royalty Income Fund has 2 warning signs (and 1 which is significant) we think you should know about. Is SIR Royalty Income Fund not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.