Why It Might Not Make Sense To Buy Mesa Royalty Trust (NYSE:MTR) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Mesa Royalty Trust (NYSE:MTR) is about to go ex-dividend in just four 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase Mesa Royalty Trust's shares before the 30th of May in order to be eligible for the dividend, which will be paid on the 31st of July.
The company's next dividend payment will be US$0.49 per share. Last year, in total, the company distributed US$2.01 to shareholders. Looking at the last 12 months of distributions, Mesa Royalty Trust has a trailing yield of approximately 7.3% on its current stock price of $29.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Mesa Royalty Trust
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. Last year, Mesa Royalty Trust paid out 96% 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.
Click here to see how much of its profit Mesa Royalty Trust paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Mesa Royalty Trust earnings per share are up 5.3% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Mesa Royalty Trust dividends are largely the same as they were 10 years ago.
The Bottom Line
Has Mesa Royalty Trust got what it takes to maintain its dividend payments? Mesa Royalty Trust has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of Mesa Royalty Trust don't faze you, it's worth being mindful of the risks involved with this business. We've identified 4 warning signs with Mesa Royalty Trust (at least 1 which is significant), and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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