Stock Analysis

Freehold Royalties (TSE:FRU) Has Affirmed Its Dividend Of CA$0.09

TSX:FRU
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Freehold Royalties Ltd. (TSE:FRU) will pay a dividend of CA$0.09 on the 15th of November. This makes the dividend yield 7.2%, 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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Looking forward, earnings per share is forecast to fall by 9.5% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 99%, which is definitely a bit high to be sustainable going forward.

historic-dividend
TSX:FRU Historic Dividend October 17th 2023

Freehold Royalties' Track Record Isn't Great

The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. The dividend has gone from an annual total of CA$1.68 in 2013 to the most recent total annual payment of CA$1.08. The dividend has shrunk at around 4.3% a year during that period. 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 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. It's encouraging to see that Freehold Royalties has been growing its earnings per share at 132% a year over the past five years. EPS has been growing well, but Freehold Royalties has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Freehold Royalties' 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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Freehold Royalties 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Freehold Royalties that you should be aware of before investing. Is Freehold Royalties not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.