Deterra Royalties Limited (ASX:DRR) has announced that it will pay a dividend of A$0.1489 per share on the 21st of March. This makes the dividend yield about the same as the industry average at 5.7%.
See our latest analysis for Deterra Royalties
Deterra Royalties Is Paying Out More Than It Is Earning
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to fall by 12.2%. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 141%, which is definitely a bit high to be sustainable going forward.
Deterra Royalties' Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from an annual total of A$0.049 in 2021 to the most recent total annual payment of A$0.289. This implies that the company grew its distributions at a yearly rate of about 81% over that duration. Deterra Royalties has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Deterra Royalties' Dividend Might Lack Growth
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Deterra Royalties has seen EPS rising for the last three years, at 24% per annum. EPS has been growing well, but Deterra Royalties has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
The Dividend Could Prove To Be Unreliable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for Deterra Royalties that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your 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.
About ASX:DRR
Flawless balance sheet and fair value.
