Mesa Royalty Trust's (NYSE:MTR) Upcoming Dividend Will Be Larger Than Last Year's
The board of Mesa Royalty Trust (NYSE:MTR) has announced that it will be paying its dividend of $0.4875 on the 31st of July, an increased payment from last year's comparable dividend. This takes the dividend yield to 9.2%, which shareholders will be pleased with.
View our latest analysis for Mesa Royalty Trust
Mesa Royalty Trust Doesn't Earn Enough To Cover Its Payments
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 96% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
EPS is set to grow by 7.1% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 109%, which probably can't continue without starting to put some pressure on the balance sheet.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $2.25 in 2013, and the most recent fiscal year payment was $2.15. The dividend has shrunk at a rate of less than 1% a year over this period. A company that decreases its dividend over time generally isn't what we are looking for.
There Isn't Much Room To Grow The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Mesa Royalty Trust has seen EPS rising for the last five years, at 7.1% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Mesa Royalty Trust's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Mesa Royalty Trust is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Mesa Royalty Trust (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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