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

Diversified Royalty Corp.'s (TSE:DIV) periodic dividend will be increasing on the 31st of January to CA$0.02, with investors receiving 9.1% more than last year's CA$0.0183. This makes the dividend yield 7.8%, which is above the industry average.

Check out our latest analysis for Diversified Royalty

Diversified Royalty Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share could rise by 9.9% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 101%, which is a bit high and could start applying pressure to the balance sheet.

Diversified Royalty Doesn't Have A Long Payment History

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 2015 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 3.1% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

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. Diversified Royalty has impressed us by growing EPS at 9.9% per year over the past five years. 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. 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, we always like to see the dividend being raised, but we don't think Diversified Royalty will make a great income stock. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Diversified Royalty has 3 warning signs (and 2 which are potentially serious) we think 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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