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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Equity LifeStyle Properties, Inc. (NYSE:ELS) is about to go ex-dividend in just 3 days. Ex-dividend means that investors that purchase the stock on or after the 26th of September will not receive this dividend, which will be paid on the 11th of October.
Equity LifeStyle Properties's next dividend payment will be US$0.6 per share. Last year, in total, the company distributed US$2.5 to shareholders. Calculating the last year's worth of payments shows that Equity LifeStyle Properties has a trailing yield of 1.8% on the current share price of $134.11. 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 Equity LifeStyle Properties can afford its dividend, and if the dividend could grow.
View our latest analysis for Equity LifeStyle Properties
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. Equity LifeStyle Properties is paying out an acceptable 53% of its profit, a common payout level among most companies. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. 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. Thankfully its dividend payments took up just 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Equity LifeStyle Properties's earnings have been skyrocketing, up 33% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.