Why It Might Not Make Sense To Buy Adams Natural Resources Fund, Inc. (NYSE:PEO) For Its Upcoming Dividend

Adams Natural Resources Fund, Inc. (NYSE:PEO) stock is about to trade ex-dividend in three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Adams Natural Resources Fund's shares on or after the 17th of May, you won't be eligible to receive the dividend, when it is paid on the 1st of June.

The company's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.73 to shareholders. Based on the last year's worth of payments, Adams Natural Resources Fund stock has a trailing yield of around 4.6% on the current share price of $16.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Adams Natural Resources Fund

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Adams Natural Resources Fund lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable.

Click here to see how much of its profit Adams Natural Resources Fund paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Adams Natural Resources Fund was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Adams Natural Resources Fund's dividend payments per share have declined at 5.4% per year on average over the past 10 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.

Get our latest analysis on Adams Natural Resources Fund's balance sheet health here.

To Sum It Up

Should investors buy Adams Natural Resources Fund for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Worse, the general trend in its earnings looks negative in recent years. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

Although, if you're still interested in Adams Natural Resources Fund and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 4 warning signs for Adams Natural Resources Fund that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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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.
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