Diversified Royalty (TSE:DIV) Will Pay A Dividend Of CA$0.0208

The board of Diversified Royalty Corp. (TSE:DIV) has announced that it will pay a dividend on the 30th of April, with investors receiving CA$0.0208 per share. The dividend yield will be 9.4% based on this payment which is still above the industry average.

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Estimates Indicate Diversified Royalty's Could Struggle to Maintain Dividend Payments In The Future

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 90% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Earnings per share is forecast to rise by 40.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 116%, which probably can't continue without putting some pressure on the balance sheet.

See our latest analysis for Diversified Royalty

Diversified Royalty Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of CA$0.188 in 2015 to the most recent total annual payment of CA$0.25. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Diversified Royalty May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. So the company has struggled to grow its EPS yet it's still paying out 152% of its earnings. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Diversified Royalty's Dividend Doesn't Look Sustainable

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

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 instance, we've picked out 2 warning signs for Diversified Royalty that investors should take into consideration. 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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