Freehold Royalties (TSE:FRU) Will Pay A Dividend Of CA$0.09

Freehold Royalties Ltd. (TSE:FRU) has announced that it will pay a dividend of CA$0.09 per share on the 15th of September. The dividend yield will be 7.7% based on this payment which is still above the industry average.

Check out our latest analysis for Freehold Royalties

Freehold Royalties' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 15.0% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Freehold Royalties' Track Record Isn't Great

While the company's dividend hasn't been very volatile, it has been decreasing over time, which isn't ideal. The annual payment during the last 10 years was CA$1.68 in 2013, and the most recent fiscal year payment was CA$1.08. This works out to be a decline of approximately 4.3% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Freehold Royalties Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Freehold Royalties has impressed us by growing EPS at 132% per year over the past five years. While EPS is growing rapidly, Freehold Royalties paid out a very high 101% 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.

Freehold Royalties' Dividend Doesn't Look Sustainable

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Freehold Royalties that investors should know about before committing capital to this stock. 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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