Freehold Royalties' (TSE:FRU) Dividend Will Be CA$0.09

Freehold Royalties Ltd. (TSE:FRU) will pay a dividend of CA$0.09 on the 15th of May. This makes the dividend yield 7.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Freehold Royalties

Freehold Royalties Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 119% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 57.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 178%, which could put the dividend in jeopardy if the company's earnings don't improve.

Freehold Royalties' Track Record Isn't Great

The dividend is currently lower than it was 10 years ago, indicating that there has been a downward trend over that time. Since 2013, the annual payment back then was CA$1.68, compared to the most recent full-year payment of CA$1.08. Doing the maths, this is a decline of about 4.3% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Freehold Royalties has grown earnings per share at 68% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On Freehold Royalties' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Freehold Royalties (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.