Duke Royalty (LON:DUKE) Is Due To Pay A Dividend Of £0.007

The board of Duke Royalty Limited (LON:DUKE) has announced that it will pay a dividend on the 12th of October, with investors receiving £0.007 per share. The dividend yield will be 8.3% based on this payment which is still above the industry average.

Check out our latest analysis for Duke Royalty

Duke Royalty's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Duke Royalty's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the trend of the last few years continues, EPS will grow by 46.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Duke Royalty's Dividend Has Lacked Consistency

Duke Royalty has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The dividend has gone from an annual total of £0.0196 in 2017 to the most recent total annual payment of £0.028. This means that it has been growing its distributions at 6.1% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Duke Royalty might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Duke Royalty has been growing its earnings per share at 46% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Duke Royalty is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Duke Royalty has 3 warning signs (and 1 which is concerning) we think you should know about. Is Duke Royalty not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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