Freehold Royalties (TSE:FRU) Will Pay A Dividend Of 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 August. This means the annual payment is 7.6% of the current stock price, which is above the average for the industry.

View our latest analysis for Freehold Royalties

Freehold Royalties' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to grow by 36.5% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 81% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was CA$1.68 in 2014, 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. 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.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Freehold Royalties has been growing its earnings per share at 111% a year over the past five years. Although earnings per share is up nicely Freehold Royalties is paying out 121% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

Freehold Royalties' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 probably look elsewhere for an income investment.

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 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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