Source Rock Royalties (CVE:SRR) Is Due To Pay A Dividend Of CA$0.0065

The board of Source Rock Royalties Ltd. (CVE:SRR) has announced that it will pay a dividend of CA$0.0065 per share on the 15th of July. Based on this payment, the dividend yield on the company's stock will be 8.8%, which is an attractive boost to shareholder returns.

See our latest analysis for Source Rock Royalties

Source Rock Royalties Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Over the next year, EPS could expand by 19.1% if the company continues along the path it has been on recently. If the dividend continues on its recent course, the payout ratio in 12 months could be 209%, which is a bit high and could start applying pressure to the balance sheet.

Source Rock Royalties Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 2 years, which isn't that long in the grand scheme of things. The annual payment during the last 2 years was CA$0.06 in 2022, and the most recent fiscal year payment was CA$0.078. This means that it has been growing its distributions at 14% per annum over that time. Source Rock Royalties has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Source Rock Royalties has been growing its earnings per share at 19% a year over the past five years. Although per-share earnings are growing at a credible rate, the massive payout ratio may limit growth in the company's future dividend payments.

Source Rock Royalties' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Source Rock Royalties you should be aware of, and 2 of them are potentially serious. Is Source Rock Royalties not quite the opportunity you were looking for? Why not check out our selection of top 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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