Dividend Investors: Don't Be Too Quick To Buy Sitio Royalties Corp. (NYSE:STR) For Its Upcoming Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sitio Royalties Corp. (NYSE:STR) is about to trade ex-dividend in the next 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. Meaning, you will need to purchase Sitio Royalties' shares before the 14th of March to receive the dividend, which will be paid on the 28th of March.
The company's next dividend payment will be US$0.51 per share. Last year, in total, the company distributed US$1.90 to shareholders. Based on the last year's worth of payments, Sitio Royalties stock has a trailing yield of around 8.0% on the current share price of US$23.86. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Sitio Royalties
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. Sitio Royalties reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Sitio Royalties didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sitio Royalties was unprofitable last year, and sadly its loss per share worsened by 119% on the previous year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sitio Royalties's dividend payments per share have declined at 18% per year on average over the past two years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
We update our analysis on Sitio Royalties every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Sitio Royalties an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Sitio Royalties.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Sitio Royalties. To help with this, we've discovered 1 warning sign for Sitio Royalties that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
