Diversified Royalty's (TSE:DIV) Dividend Will Be CA$0.0204

Diversified Royalty Corp.'s (TSE:DIV) investors are due to receive a payment of CA$0.0204 per share on 29th of December. Based on this payment, the dividend yield on the company's stock will be 9.0%, which is an attractive boost to shareholder returns.

View our latest analysis for Diversified Royalty

Diversified Royalty Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Diversified Royalty was paying out 184% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

EPS is set to grow by 1.5% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 195%, which probably can't continue without starting to put some pressure on the balance sheet.

Diversified Royalty Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2014, the dividend has gone from CA$0.188 total annually to 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.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Diversified Royalty's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The earnings growth is anaemic, and the company is paying out 184% of its profit. This gives limited room for the company to raise the dividend in the future.

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. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Diversified Royalty (2 are a bit unpleasant!) 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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