Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see H&R Real Estate Investment Trust (TSE:HR.UN) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 15th of August in order to receive the dividend, which the company will pay on the 30th of August.
H&R Real Estate Investment Trust's next dividend payment will be CA$0.12 per share. Last year, in total, the company distributed CA$1.38 to shareholders. Last year's total dividend payments show that H&R Real Estate Investment Trust has a trailing yield of 6.0% on the current share price of CA$22.89. If you buy this business for its dividend, you should have an idea of whether H&R Real Estate Investment Trust's dividend is reliable and sustainable. As a result, readers should always check whether H&R Real Estate Investment Trust has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. H&R Real Estate Investment Trust paid out more than half (75%) of its earnings last year, which is a regular payout ratio for most companies. While H&R Real Estate Investment Trust seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see H&R Real Estate Investment Trust's earnings per share have dropped 6.1% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the H&R Real Estate Investment Trust dividends are largely the same as they were ten years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Should investors buy H&R Real Estate Investment Trust for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least H&R Real Estate Investment Trust's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: H&R Real Estate Investment Trust has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for H&R Real Estate Investment Trust? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
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