Why You Should Leave Monmouth Real Estate Investment Corporation (NYSE:MNR)’s Upcoming Dividend On The Shelf

Monmouth Real Estate Investment Corporation (NYSE:MNR) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 14th of November to receive the dividend, which will be paid on the 16th of December.

Monmouth Real Estate Investment’s upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.7 per share to shareholders. Last year’s total dividend payments show that Monmouth Real Estate Investment has a trailing yield of 4.6% on the current share price of $14.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Monmouth Real Estate Investment

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. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don’t cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 64% of its free cash flow as dividends, within the usual range for most companies.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

NYSE:MNR Historical Dividend Yield, November 9th 2019
NYSE:MNR Historical Dividend Yield, November 9th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Monmouth Real Estate Investment reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

We’d also point out that Monmouth Real Estate Investment issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Monmouth Real Estate Investment has lifted its dividend by approximately 1.3% a year on average.

Get our latest analysis on Monmouth Real Estate Investment’s balance sheet health here.

Final Takeaway

From a dividend perspective, should investors buy or avoid Monmouth Real Estate Investment? It’s hard to get used to Monmouth Real Estate Investment paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we’d be inclined to steer clear of Monmouth Real Estate Investment.

Ever wonder what the future holds for Monmouth Real Estate Investment? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.