Diversified Royalty's (TSE:DIV) Dividend Will Be CA$0.0208

Diversified Royalty Corp. (TSE:DIV) will pay a dividend of CA$0.0208 on the 29th of November. This means the annual payment is 8.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Diversified Royalty

Diversified Royalty's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 117% 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.

EPS is set to fall by 2.7% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 139%, which could put the dividend in jeopardy if the company's earnings don't improve.

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. Since 2014, the dividend has gone from CA$0.188 total annually to CA$0.25. This means that it has been growing its distributions at 2.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Diversified Royalty has seen EPS rising for the last five years, at 15% per annum. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

We should note that Diversified Royalty has issued stock equal to 16% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

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. Although they have been consistent in the past, we think the payments are a little high to be sustained. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Diversified Royalty has 3 warning signs (and 2 which don't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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