Diversified Royalty's (TSE:DIV) Dividend Will Be CA$0.02

Diversified Royalty Corp.'s (TSE:DIV) investors are due to receive a payment of CA$0.02 per share on 29th of September. The dividend yield will be 8.5% based on this payment which is still above the industry average.

See our latest analysis for Diversified Royalty

Diversified Royalty Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the dividend made up 175% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Earnings per share is forecast to rise by 52.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 130%, which probably can't continue without putting some pressure on the balance sheet.

Diversified Royalty Is Still Building Its Track Record

Diversified Royalty's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of CA$0.188 in 2014 to the most recent total annual payment of CA$0.24. This implies that the company grew its distributions at a yearly rate of about 2.7% 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.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately, Diversified Royalty's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.

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.

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. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Diversified Royalty has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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