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Dividend Investors: Don't Be Too Quick To Buy Permian Basin Royalty Trust (NYSE:PBT) For Its Upcoming Dividend

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It looks like Permian Basin Royalty Trust (NYSE:PBT) is about to go ex-dividend in the next three days. This means that investors who purchase shares on or after the 27th of November will not receive the dividend, which will be paid on the 14th of December.

Permian Basin Royalty Trust's next dividend payment will be US$0.014 per share, and in the last 12 months, the company paid a total of US$0.30 per share. Calculating the last year's worth of payments shows that Permian Basin Royalty Trust has a trailing yield of 9.4% on the current share price of $2.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Permian Basin Royalty Trust has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Permian Basin 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. Permian Basin Royalty Trust paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Click here to see how much of its profit Permian Basin Royalty Trust paid out over the last 12 months.


Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Permian Basin Royalty Trust's earnings per share have dropped 22% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Permian Basin Royalty Trust has seen its dividend decline 16% per annum on average over the past 10 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

Should investors buy Permian Basin Royalty Trust for the upcoming dividend? Not only are earnings per share shrinking, but Permian Basin Royalty Trust is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Permian Basin Royalty Trust doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of Permian Basin Royalty Trust don't faze you, it's worth being mindful of the risks involved with this business. For example - Permian Basin Royalty Trust has 1 warning sign we think 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@simplywallst.com.