Readers hoping to buy TOC Property Backed Lending Trust Plc (LON:PBLT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, TOC Property Backed Lending Trust investors that purchase the stock on or after the 10th of June will not receive the dividend, which will be paid on the 30th of June.
The company's next dividend payment will be UK£0.01 per share, and in the last 12 months, the company paid a total of UK£0.06 per share. Calculating the last year's worth of payments shows that TOC Property Backed Lending Trust has a trailing yield of 4.7% on the current share price of £0.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. TOC Property Backed Lending Trust paid out 94% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see TOC Property Backed Lending Trust's earnings per share have dropped 5.2% a year over the past three years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TOC Property Backed Lending Trust's dividend payments per share have declined at 9.6% per year on average over the past four years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is TOC Property Backed Lending Trust worth buying for its dividend? Not only are earnings per share shrinking, but TOC Property Backed Lending Trust is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. TOC Property Backed Lending Trust doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
So if you're still interested in TOC Property Backed Lending Trust despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 5 warning signs for TOC Property Backed Lending Trust that we strongly recommend you have a look at before investing in the company.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
When trading TOC Property Backed Lending Trust or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.