SIR Royalty Income Fund's (TSE:SRV.UN) Dividend Will Be CA$0.095

SIR Royalty Income Fund (TSE:SRV.UN) will pay a dividend of CA$0.095 on the 28th of February. The dividend yield will be 7.5% based on this payment which is still above the industry average.

Check out our latest analysis for SIR Royalty Income Fund

SIR Royalty Income Fund's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, SIR Royalty Income Fund was paying a whopping 104% as a dividend, but this only made up 23% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share could rise by 32.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 18% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of CA$0.996 in 2013 to the most recent total annual payment of CA$1.27. This means that it has been growing its distributions at 2.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that SIR Royalty Income Fund has been growing its earnings per share at 32% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On SIR Royalty Income Fund's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about SIR Royalty Income Fund's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think SIR Royalty Income Fund is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 4 warning signs for SIR Royalty Income Fund you should be aware of, and 2 of them are potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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