It Might Not Be A Great Idea To Buy Bridgemarq Real Estate Services Inc. (TSE:BRE) For Its Next Dividend

Bridgemarq Real Estate Services Inc. (TSE:BRE) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Bridgemarq Real Estate Services' shares before the 29th of April to receive the dividend, which will be paid on the 31st of May.

The company's upcoming dividend is CA$0.1125 a share, following on from the last 12 months, when the company distributed a total of CA$1.35 per share to shareholders. Last year's total dividend payments show that Bridgemarq Real Estate Services has a trailing yield of 9.9% on the current share price of CA$13.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Bridgemarq Real Estate Services

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bridgemarq Real Estate Services paid out a disturbingly high 320% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. A useful secondary check can be to evaluate whether Bridgemarq Real Estate Services generated enough free cash flow to afford its dividend. The company paid out 100% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.

Cash is slightly more important than profit from a dividend perspective, but given Bridgemarq Real Estate Services's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see how much of its profit Bridgemarq Real Estate Services paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Bridgemarq Real Estate Services's 25% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Bridgemarq Real Estate Services has lifted its dividend by approximately 2.0% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Bridgemarq Real Estate Services is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

The Bottom Line

Has Bridgemarq Real Estate Services got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (320%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Bridgemarq Real Estate Services.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Bridgemarq Real Estate Services. Our analysis shows 6 warning signs for Bridgemarq Real Estate Services that we strongly recommend you have a look at before investing in the company.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.