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 on the 29th of July, with investors receiving CA$0.018 per share. The dividend yield will be 8.1% based on this payment which is still above the industry average.

Check out our latest analysis for Diversified Royalty

Diversified Royalty Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 101% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Looking forward, earnings per share is forecast to fall by 15.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 124%, which is definitely a bit high to be sustainable going forward.

Diversified Royalty Doesn't Have A Long Payment History

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. Since 2014, the first annual payment was CA$0.19, compared to the most recent full-year payment of CA$0.22. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. 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.

Diversified Royalty's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see Diversified Royalty has been growing its earnings per share at 16% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Diversified Royalty that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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