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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PHX Minerals Inc. (NYSE:PHX) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 18th of February will not receive the dividend, which will be paid on the 5th of March.
PHX Minerals's next dividend payment will be US$0.01 per share, on the back of last year when the company paid a total of US$0.04 to shareholders. Last year's total dividend payments show that PHX Minerals has a trailing yield of 1.2% on the current share price of $3.31. If you buy this business for its dividend, you should have an idea of whether PHX Minerals's dividend is reliable and sustainable. So we need to investigate whether PHX Minerals can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PHX Minerals reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. PHX Minerals paid out more free cash flow than it generated - 114%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. PHX Minerals was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
PHX Minerals also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PHX Minerals has seen its dividend decline 12% per annum on average over the past 10 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.
We update our analysis on PHX Minerals every 24 hours, so you can always get the latest insights on its financial health, here.
Should investors buy PHX Minerals for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Although, if you're still interested in PHX Minerals and want to know more, you'll find it very useful to know what risks this stock faces. For example - PHX Minerals has 4 warning signs 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.
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