The Keg Royalties Income Fund (TSE:KEG.UN) has announced that it will pay a dividend of CA$0.0946 per share on the 31st of July. This means the annual payment is 8.1% of the current stock price, which is above the average for the industry.

View our latest analysis for Keg Royalties Income Fund

Keg Royalties Income Fund's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Keg Royalties Income Fund was paying out 70% of earnings, but a comparatively small 69% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Earnings per share could rise by 1.6% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Keg Royalties Income Fund Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was CA$0.96, compared to the most recent full-year payment of CA$1.14. This works out to be a compound annual growth rate (CAGR) of approximately 1.7% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, Keg Royalties Income Fund's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

We Really Like Keg Royalties Income Fund's Dividend

Overall, we like to see the dividend staying consistent, and we think Keg Royalties Income Fund might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Keg Royalties Income Fund that investors should take into consideration. Is Keg Royalties Income Fund not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.