Diversified Royalty (TSE:DIV) Is Paying Out A Dividend Of CA$0.0229

The board of Diversified Royalty Corp. (TSE:DIV) has announced that it will pay a dividend of CA$0.0229 per share on the 28th of November. The dividend yield will be 7.9% based on this payment which is still above the industry average.

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Diversified Royalty's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

The next 12 months is set to see EPS grow by 15.8%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 142% over the next year.

Check out our latest analysis for Diversified Royalty

Diversified Royalty Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the annual payment back then was CA$0.188, compared to the most recent full-year payment of CA$0.275. This works out to be a compound annual growth rate (CAGR) of approximately 3.9% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Diversified Royalty has seen EPS rising for the last five years, at 26% per annum. EPS has been growing well, but Diversified Royalty has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Diversified Royalty's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Diversified Royalty (2 shouldn't be ignored!) that you should be aware of before investing. 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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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.