It Might Be Better To Avoid Bridgemarq Real Estate Services Inc.'s (TSE:BRE) Upcoming Dividend
Bridgemarq Real Estate Services Inc. (TSE:BRE) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 30th of January to receive the dividend, which will be paid on the 28th of February.
Bridgemarq Real Estate Services's upcoming dividend is CA$0.11 a share, following on from the last 12 months, when the company distributed a total of CA$1.35 per share to shareholders. Based on the last year's worth of payments, Bridgemarq Real Estate Services has a trailing yield of 8.8% on the current stock price of CA$15.27. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Bridgemarq Real Estate Services can afford its dividend, and if the dividend could grow.
View our latest analysis for Bridgemarq Real Estate Services
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Bridgemarq Real Estate Services distributed an unsustainably high 120% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The company paid out 104% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
As Bridgemarq Real Estate Services's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Click here to see how much of its profit Bridgemarq Real Estate Services paid out over the last 12 months.
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. It's encouraging to see Bridgemarq Real Estate Services has grown its earnings rapidly, up 64% a year for the past five years. Earnings per share are increasing at a rapid rate, but the company is paying out more than we are comfortable with, based on current earnings. Generally, when a company is growing this quickly and paying out all of its earnings as dividends, it can suggest either that the company is borrowing heavily to fund its growth, or that earnings growth is likely to slow due to lack of reinvestment.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Bridgemarq Real Estate Services's dividend payments are broadly unchanged compared to where they were ten years ago.
Final Takeaway
Is Bridgemarq Real Estate Services worth buying for its dividend? Earnings per share have been growing, despite the company paying out a concerningly high percentage of its earnings and cashflow. We struggle to see how a company paying out so much of its earnings and cash flow will be able to sustain its dividend in a downturn, or reinvest enough into its business to continue growing earnings without borrowing heavily. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Bridgemarq Real Estate Services.
Curious about whether Bridgemarq Real Estate Services has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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