Adams Natural Resources Fund (NYSE:PEO) Has Announced A Dividend Of $0.10

Adams Natural Resources Fund, Inc. (NYSE:PEO) will pay a dividend of $0.10 on the 31st of May. The dividend yield will be 5.8% based on this payment which is still above the industry average.

Check out our latest analysis for Adams Natural Resources Fund

Adams Natural Resources Fund Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Adams Natural Resources Fund's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 46.6% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 230% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $1.88 total annually to $1.35. Doing the maths, this is a decline of about 3.3% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Adams Natural Resources Fund's 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. Adams Natural Resources Fund has seen EPS rising for the last five years, at 47% per annum. While EPS is growing rapidly, Adams Natural Resources Fund paid out a very high 355% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Adams Natural Resources Fund's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Adams Natural Resources Fund's payments, as there could be some issues with sustaining them into the future. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Adams Natural Resources Fund that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.