The board of SIR Royalty Income Fund( TSE:SRV.UN ) has announced that it will pay a dividend of CA$0.105 per share on the 30th of January. This takes the dividend yield to 8.5%, which shareholders will be pleased with.
SIR Royalty Income Fund's Future Dividend Projections Appear Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 123% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Over the next year, EPS could expand by 36.9% if the company continues along the path it has been on recently. If recent patterns in the dividend continue, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.
Check out our latest analysis for SIR Royalty Income Fund
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of CA$1.14 in 2016 to the most recent total annual payment of CA$1.26. This means that it has been growing its distributions at 1.0% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Dividend Growth Could Be Constrained
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that SIR Royalty Income Fund has grown earnings per share at 37% per year over the past five years. EPS has been growing well, but SIR Royalty Income Fund has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
SIR Royalty Income Fund's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think SIR Royalty Income Fund's payments are rock solid. Strong earnings growth means SIR Royalty Income Fund has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think SIR Royalty Income Fund is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for SIR Royalty Income Fund (of which 1 shouldn't be ignored!) you should know about. Is SIR Royalty Income Fund not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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