Is It Smart To Buy SIR Royalty Income Fund (TSE:SRV.UN) Before It Goes Ex-Dividend?
It looks like SIR Royalty Income Fund (TSE:SRV.UN) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase SIR Royalty Income Fund's shares before the 16th of February in order to be eligible for the dividend, which will be paid on the 28th of February.
The company's next dividend payment will be CA$0.095 per share, and in the last 12 months, the company paid a total of CA$1.28 per share. Based on the last year's worth of payments, SIR Royalty Income Fund stock has a trailing yield of around 7.5% on the current share price of CA$17. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for SIR Royalty Income Fund
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. SIR Royalty Income Fund has a low and conservative payout ratio of just 23% of its income after tax. 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. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that SIR Royalty Income Fund'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.
Click here to see how much of its profit SIR Royalty Income Fund paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see SIR Royalty Income Fund has grown its earnings rapidly, up 33% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, SIR Royalty Income Fund has lifted its dividend by approximately 2.5% a year on average. Earnings per share have been growing much quicker than dividends, potentially because SIR Royalty Income Fund is keeping back more of its profits to grow the business.
To Sum It Up
Is SIR Royalty Income Fund worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, SIR Royalty Income Fund paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks SIR Royalty Income Fund is facing. For instance, we've identified 4 warning signs for SIR Royalty Income Fund (2 are a bit unpleasant) you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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