It looks like Fundamenta Real Estate AG (VTX:FREN) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 14th of April to receive the dividend, which will be paid on the 16th of April.
Fundamenta Real Estate's next dividend payment will be CHF0.50 per share, on the back of last year when the company paid a total of CHF0.50 to shareholders. Looking at the last 12 months of distributions, Fundamenta Real Estate has a trailing yield of approximately 3.2% on its current stock price of CHF15.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fundamenta Real Estate is paying out an acceptable 56% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Fundamenta Real Estate generated enough free cash flow to afford its dividend. Over the last year it paid out 75% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Fundamenta Real Estate'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 earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Fundamenta Real Estate, with earnings per share up 7.5% on average over the last five years. Decent historical earnings per share growth suggests Fundamenta Real Estate has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Fundamenta Real Estate has delivered an average of 2.8% per year annual increase in its dividend, based on the past eight years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Fundamenta Real Estate an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Fundamenta Real Estate paid out a bit over half of its earnings and free cash flow last year. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Fundamenta Real Estate's dividend merits.
If you want to look further into Fundamenta Real Estate, it's worth knowing the risks this business faces. Be aware that Fundamenta Real Estate is showing 4 warning signs in our investment analysis, and 1 of those is significant...
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.
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