PermRock Royalty Trust (NYSE:PRT) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 27th of November in order to be eligible for this dividend, which will be paid on the 14th of December.
PermRock Royalty Trust's next dividend payment will be US$0.02 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Last year's total dividend payments show that PermRock Royalty Trust has a trailing yield of 8.4% on the current share price of $2.925. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, PermRock Royalty Trust paid out 100% 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.
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. From this perspective, we're disturbed to see earnings per share plunged 29% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PermRock Royalty Trust has seen its dividend decline 60% per annum on average over the past two years, which is not great to see. 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid PermRock Royalty Trust? Not only are earnings per share shrinking, but PermRock 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. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
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 PermRock Royalty Trust. To help with this, we've discovered 6 warning signs for PermRock Royalty Trust (1 is significant!) that you ought to be aware of before buying the shares.
If you're in the market for dividend stocks, we recommend checking our list of top 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.
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