Stock Analysis

RMR Group (NASDAQ:RMR) Has Affirmed Its Dividend Of US$0.38

  •  Updated
NasdaqCM:RMR
Source: Shutterstock

The RMR Group Inc.'s (NASDAQ:RMR) investors are due to receive a payment of US$0.38 per share on 18th of November. This means the annual payment is 25% of the current stock price, which is above the average for the industry.

View our latest analysis for RMR Group

RMR Group Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment made up 88% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next 12 months is set to see EPS grow by 13.7%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

historic-dividend
NasdaqCM:RMR Historic Dividend October 17th 2021

RMR Group Is Still Building Its Track Record

It is great to see that RMR Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The first annual payment during the last 6 years was US$1.00 in 2015, and the most recent fiscal year payment was US$1.52. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. RMR Group's earnings per share has shrunk at 17% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On RMR Group's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about RMR Group's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for RMR Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

Valuation is complex, but we're helping make it simple.

Find out whether RMR Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis