Fundamenta Real Estate AG (VTX:FREN) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 12th of April in order to be eligible for this dividend, which will be paid on the 14th of April.
Fundamenta Real Estate's next dividend payment will be CHF0.55 per share. Last year, in total, the company distributed CHF0.55 to shareholders. Calculating the last year's worth of payments shows that Fundamenta Real Estate has a trailing yield of 2.8% on the current share price of CHF19.9. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Fundamenta Real Estate can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fundamenta Real Estate is paying out an acceptable 52% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 84% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Fundamenta Real Estate, with earnings per share up 4.6% on average over the last five years. A payout ratio of 52% looks like a tacit signal from management that reinvestment opportunities in the business are low. In line with limited earnings growth in recent years, this is not the most appealing combination.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fundamenta Real Estate has delivered 3.6% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Fundamenta Real Estate worth buying for its dividend? Earnings per share have been growing modestly and Fundamenta Real Estate paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Fundamenta Real Estate from a dividend perspective.
If you want to look further into Fundamenta Real Estate, it's worth knowing the risks this business faces. We've identified 3 warning signs with Fundamenta Real Estate (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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