U.S. Markets closed
  • S&P 500

    4,662.85
    +3.82 (+0.08%)
     
  • Dow 30

    35,911.81
    -201.79 (-0.56%)
     
  • Nasdaq

    14,893.75
    +86.95 (+0.59%)
     
  • Russell 2000

    2,162.46
    +3.02 (+0.14%)
     
  • Crude Oil

    84.26
    +0.44 (+0.52%)
     
  • Gold

    1,818.20
    +1.70 (+0.09%)
     
  • Silver

    23.01
    +0.10 (+0.42%)
     
  • EUR/USD

    1.1413
    -0.0003 (-0.0228%)
     
  • 10-Yr Bond

    1.7720
    +0.0610 (+3.57%)
     
  • Vix

    19.19
    -1.12 (-5.51%)
     
  • GBP/USD

    1.3647
    -0.0033 (-0.2415%)
     
  • USD/JPY

    114.5960
    +0.3960 (+0.3468%)
     
  • BTC-USD

    42,234.08
    -903.05 (-2.09%)
     
  • CMC Crypto 200

    1,001.89
    -23.84 (-2.32%)
     
  • FTSE 100

    7,611.23
    +68.28 (+0.91%)
     
  • Nikkei 225

    28,333.52
    +209.24 (+0.74%)
     

Do These 3 Checks Before Buying Rattler Midstream LP (NASDAQ:RTLR) For Its Upcoming Dividend

  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Rattler Midstream LP (NASDAQ:RTLR) stock is about to trade ex-dividend in 2 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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 Rattler Midstream's shares before the 13th of August in order to receive the dividend, which the company will pay on the 23rd of August.

The company's next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Based on the last year's worth of payments, Rattler Midstream stock has a trailing yield of around 7.3% on the current share price of $10.97. If you buy this business for its dividend, you should have an idea of whether Rattler Midstream's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Rattler Midstream

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Rattler Midstream paid out 102% 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. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The company paid out 94% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

Cash is slightly more important than profit from a dividend perspective, but given Rattler Midstream's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's vaguely disappointing to see earnings per share declined -3.2% on last year.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Rattler Midstream has seen its dividend decline 11% per annum on average over the past two years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Rattler Midstream? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (102%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Rattler Midstream and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 2 warning signs for Rattler Midstream you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.