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 of CA$0.0208 per share on the 28th of February. This means the annual payment is 9.0% of the current stock price, which is above the average for the industry.

See our latest analysis for Diversified Royalty

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

We like to see robust dividend yields, but that doesn't matter if the payment isn't 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. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to fall by 10.6%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 152%, which is definitely a bit high to be sustainable going forward.

Diversified Royalty Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from CA$0.188 total annually to CA$0.25. This works out to be a compound annual growth rate (CAGR) of approximately 2.9% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Diversified Royalty's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Diversified Royalty has impressed us by growing EPS at 14% per 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.

An additional note is that the company has been raising capital by issuing stock equal to 15% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Diversified Royalty is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Diversified Royalty (of which 2 are significant!) you should know about. 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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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.