Alaris Royalty Corp. (TSX:AD) currently pays its shareholders a dividend of 7.7%, paid out in monthly installments. This is a very high payout for any dividend stock, and investors might be concerned that it might not be sustainable.
Monthly payments of $0.135 will total $1.62 per share, every year. In the company’s trailing twelve months its earnings per share (EPS) was $1.66, meaning that at this pace Alaris will pay out 98% of its earnings. In the prior year when EPS was $1.81, the payout ratio would have been under 90%.
If we look at the company’s cash flow we might get a better sense of how well Alaris is able to maintain this dividend. Free cash flow in the last 12 months has totaled $77 million, and 77% of this has been paid out as dividends. In the last fiscal year, 81% of the company’s free cash was paid out to shareholders.
Despite a high payout ratio, the dividend is certainly sustainable.
Alaris has also grown its payouts over the years and since 2012 dividend payments have grown by 35%. However, the last time the company increased its payout was over two years ago, so it is certainly not a guarantee that the trend will continue.
Even if the company does not continue to grow its dividend, a 7.7% yield is still a fantastic payout that would be hard to rival. Alaris has also done a good job of growing its revenue and could be a great growth investment as well, with sales tripling in just four years.