Advanced Flower Capital (Nasdaq: AFCG) is a microcap mortgage real estate investment trust, or REIT, that focuses on the cannabis industry. The company pays a whopping 16% yield. While the debate rages on about whether marijuana is safe, let's see if we can settle whether Advanced Flower's dividend is safe or in danger of being cut. (Thank you to Wealthy Retirement reader Terry, who suggested last week that we take a look at Advanced Flower. If you have a stock you'd like me to review in Safety Net, leave a comment here.) Advanced Flower's cash flow metric is called distributable earnings. In 2023, distributable earnings fell from $49.9 million to $41.4 million. However, distributable earnings for 2024 are forecast to come in at $69.3 million - a significant improvement. That should help the payout ratio, which has been a concern in the past. In 2023, the company paid out $42.5 million in dividends for a payout ratio of 103%. That means it paid out $1.03 in dividends for every $1 in distributable earnings. I'm OK with REITs paying out up to 100% of their cash flow in dividends, as they are required by law to pay 90% or more of their earnings to shareholders. As a result, REITs tend to have higher payout ratios than other companies. But as long as they're not paying out more than they're bringing in, that's fine. |
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