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Don't Buy PermRock Royalty Trust (NYSE:PRT) For Its Next Dividend Without Doing These Checks

·3-min read

PermRock Royalty Trust (NYSE:PRT) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase PermRock Royalty Trust's shares before the 27th of May in order to receive the dividend, which the company will pay on the 14th of June.

The company's upcoming dividend is US$0.056 a share, following on from the last 12 months, when the company distributed a total of US$0.56 per share to shareholders. Based on the last year's worth of payments, PermRock Royalty Trust has a trailing yield of 8.4% on the current stock price of $6.66. If you buy this business for its dividend, you should have an idea of whether PermRock Royalty Trust's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for PermRock 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. PermRock Royalty Trust paid out 100% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Click here to see how much of its profit PermRock Royalty Trust paid out over the last 12 months.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PermRock Royalty Trust's earnings per share plummeted 34% over the past year,which is rarely good news for the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PermRock Royalty Trust's dividend payments per share have declined at 29% per year on average over the past three years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

To Sum It Up

Should investors buy PermRock Royalty Trust for the upcoming dividend? Earnings per share are in decline and PermRock Royalty Trust is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that being said, if you're still considering PermRock Royalty Trust as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 5 warning signs with PermRock Royalty Trust (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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