Diversified Royalty (TSE:DIV) Has Re-Affirmed Its Dividend Of CA$0.018

The board of Diversified Royalty Corp. (TSE:DIV) has announced that it will pay a dividend of CA$0.018 per share on the 30th of June. The dividend yield will be 7.6% based on this payment which is still above the industry average.

View our latest analysis for Diversified Royalty

Diversified Royalty Doesn't Earn Enough To Cover Its Payments

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. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

EPS is set to fall by 15.2% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 125%, which is definitely a bit high to be sustainable going forward.

Diversified Royalty Is Still Building Its Track Record

It is great to see that Diversified Royalty has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from CA$0.19 in 2014 to the most recent annual payment of CA$0.22. This means that it has been growing its distributions at 2.0% per annum over that time. Diversified Royalty hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth Could Be Constrained

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Diversified Royalty has been growing its earnings per share at 16% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Diversified Royalty's payments, as there could be some issues with sustaining them into the future. Strong earnings growth means Diversified Royalty has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Diversified Royalty is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Diversified Royalty that investors should take into consideration. Is Diversified Royalty not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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