Do These 3 Checks Before Buying Mesa Royalty Trust (NYSE:MTR) For Its Upcoming Dividend
Mesa Royalty Trust (NYSE:MTR) stock is about to trade ex-dividend in 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Mesa Royalty Trust's shares before the 30th of August in order to receive the dividend, which the company will pay on the 31st of October.
The company's next dividend payment will be US$0.29 per share, on the back of last year when the company paid a total of US$0.96 to shareholders. Based on the last year's worth of payments, Mesa Royalty Trust stock has a trailing yield of around 8.8% on the current share price of $18. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Mesa Royalty Trust can afford its dividend, and if the dividend could grow.
View our latest analysis for Mesa Royalty Trust
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. Last year, Mesa Royalty Trust paid out 101% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.
Click here to see how much of its profit Mesa Royalty Trust paid out over the last 12 months.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Mesa Royalty Trust earnings per share are up 7.8% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mesa Royalty Trust's dividend payments per share have declined at 8.2% per year on average over the past 10 years, which is uninspiring. Mesa Royalty Trust is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Should investors buy Mesa Royalty Trust for the upcoming dividend? While we like that its earnings are growing somewhat, we're not enamored that it's paying out 101% of last year's earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of Mesa Royalty Trust don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 5 warning signs we've spotted with Mesa Royalty Trust (including 2 which are a bit unpleasant).
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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