Diversified Royalty (TSE:DIV) Will Pay A Larger Dividend Than Last Year At CA$0.0229

Diversified Royalty Corp.'s (TSE:DIV) dividend will be increasing from last year's payment of the same period to CA$0.0229 on 31st of July. This will take the dividend yield to an attractive 7.6%, providing a nice boost to shareholder returns.

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 153% of what it was earning and 92% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise by 15.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 142%, which probably can't continue without putting some pressure on the balance sheet.

Check out our latest analysis for Diversified Royalty

Diversified Royalty Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. 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 implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. 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.

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. We are encouraged to see that Diversified Royalty has grown earnings per share at 31% per year over the past five years. Although earnings per share is up nicely Diversified Royalty is paying out 153% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Diversified Royalty's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Diversified Royalty that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.