Melcor Real Estate Investment Trust (TSE:MR.UN) cover image
50 Reads (3 mins read)

These checks show Melcor Real Estate Investment Trust's (TSE:MR.UN) dividend could be in trouble

22nd May by Ben Hobson

There are lots of financial indicators that can help us evaluate the sustainability of a company’s dividend. Knowing when these payments to shareholders are becoming a strain is valuable, as it gives us time to decide whether our money might be better off deployed elsewhere.

Taking the best of these and applying them to Melcor Real Estate Investment Trust (TSE:MR.UN), which pays a rolling dividend of 19.6%, raises questions about whether it can afford this dividend payment...

GET MORE DATA-DRIVEN INSIGHTS INTO TSE:MR.UN »

Melcor Real Estate Investment Trust's (TSE:MR.UN) heavily geared balance sheet

One way to analyse dividend safety is to focus on a company’s balance sheet strength. A highly leveraged company that struggles to meet its short-term liabilities is more likely to cut its dividend than a well-financed one.

A safe level of gearing (debt to equity) on the balance sheet is generally considered to be 50 percent or less. Melcor Real Estate Investment Trust's gearing ratio is 164.1% - above the 50% threshold.

The current ratio (current assets / current liabilities ) gauges a company’s capacity to service short term debts. A current ratio of less than one can be cause for concern. Melcor Real Estate Investment Trust's current ratio is 0.080 - below the 1.0x threshold.

Is Melcor Real Estate Investment Trust's (TSE:MR.UN) dividend cover below 1.0x?

Dividend cover is seen by many as the essential dividend health metric and is calculated by dividing earnings per share divided by dividend per share (EPS/DPS). The usual rule of thumb is that a dividend cover of less than 1.5x earnings could become a matter of concern.

  • The rolling dividend cover is based on projected dividends and earnings. Melcor Real Estate Investment Trust's rolling dividend cover is 0.58.
  • The historic dividend cover is, of course, based on historic dividends and earnings. Melcor Real Estate Investment Trust's historic dividend cover is -0.22.

Both of these figures are well below the 1.0x safety threshold that we have set and suggests the company is struggling to meet its dividend commitments.

Is the company struggling to generate cash?

Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Melcor Real Estate Investment Trust generated 0.47 in FCF PS. This is lower than the dividend per share of 0.68 and indicates that the company has not generated enough FCF to sustain dividends over the past twelve months.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Melcor Real Estate Investment Trust (TSE:MR.UN), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.

Share this article
As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

Stockopedia is here to help individual investors beat the markets by being the very best in stock analysis, research & community. Take a 30 day free trial of our extensive multi-award winning service and find out why more than ten thousand global investors can't live without it.

© Stockopedia 2020, Refinitiv, Share Data Services.
This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.