CapitaLand Mall Trust (SGX:C38U) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 30th of July to receive the dividend, which will be paid on the 29th of August.
CapitaLand Mall Trust’s next dividend payment will be S$0.029 per share, on the back of last year when the company paid a total of S$0.12 to shareholders. Last year’s total dividend payments show that CapitaLand Mall Trust has a trailing yield of 4.4% on the current share price of SGD2.64. 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 check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 87% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We’d be worried about the risk of a drop in earnings. That said, REITs are often required by law to distribute all of their earnings, and it’s not unusual to see a REIT with a payout ratio around 100%. We wouldn’t read too much into this. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (87%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It’s positive to see that CapitaLand Mall Trust’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It’s not encouraging to see that CapitaLand Mall Trust’s earnings are effectively flat over the past five years. We’d take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. A high payout ratio of 87% generally happens when a company can’t find better uses for the cash. Combined with slim earnings growth in the past few years, CapitaLand Mall Trust could be signalling that its future growth prospects are thin.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. CapitaLand Mall Trust has seen its dividend decline 2.1% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
Is CapitaLand Mall Trust worth buying for its dividend? CapitaLand Mall Trust has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don’t appear unsustainable. While it does have some good things going for it, we’re a bit ambivalent and it would take more to convince us of CapitaLand Mall Trust’s dividend merits.
Ever wonder what the future holds for CapitaLand Mall Trust? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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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