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

Freehold Royalties Ltd.'s (TSE:FRU) investors are due to receive a payment of CA$0.09 per share on 15th of July. This means the annual payment is 8.2% of the current stock price, which is above the average for the industry.

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Freehold Royalties' Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Looking forward, earnings per share is forecast to fall by 24.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 149%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for Freehold Royalties

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. Since 2015, the annual payment back then was CA$1.68, compared to the most recent full-year payment of CA$1.08. This works out to be a decline of approximately 4.3% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Freehold Royalties' Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Freehold Royalties has been growing its earnings per share at 102% a year over the past five years. While EPS is growing rapidly, Freehold Royalties paid out a very high 109% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Freehold Royalties' payments, as there could be some issues with sustaining them into the future. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've picked out 1 warning sign for Freehold Royalties that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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