It looks like Boston Pizza Royalties Income Fund (TSE:BPF.UN) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Boston Pizza Royalties Income Fund's shares before the 20th of September in order to receive the dividend, which the company will pay on the 29th of September.
The company's next dividend payment will be CA$0.11 per share, on the back of last year when the company paid a total of CA$1.28 to shareholders. Looking at the last 12 months of distributions, Boston Pizza Royalties Income Fund has a trailing yield of approximately 8.0% on its current stock price of CA$15.97. 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.
Check out our latest analysis for Boston Pizza Royalties Income Fund
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Boston Pizza Royalties Income Fund is paying out an acceptable 72% of its profit, a common payout level among most companies. 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 more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Boston Pizza Royalties 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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Boston Pizza Royalties Income Fund, with earnings per share up 5.0% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Boston Pizza Royalties Income Fund has increased its dividend at approximately 0.9% a year on average.
Final Takeaway
Is Boston Pizza Royalties Income Fund worth buying for its dividend? Earnings per share growth has been unremarkable, 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 excessive. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
If you're not too concerned about Boston Pizza Royalties Income Fund's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. To that end, you should learn about the 3 warning signs we've spotted with Boston Pizza Royalties Income Fund (including 1 which is a bit concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.