Rattler Midstream (NASDAQ:RTLR) Is Paying Out A Larger Dividend Than Last Year

Rattler Midstream LP (NASDAQ:RTLR) will increase its dividend on the 14th of March to US$0.30. This will take the annual payment from 5.9% to 7.4% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Rattler Midstream

Rattler Midstream 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. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 51.0% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Rattler Midstream's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2019, the first annual payment was US$1.00, compared to the most recent full-year payment of US$0.80. Doing the maths, this is a decline of about 7.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Rattler Midstream's EPS has fallen by approximately 47% per year during the past three years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Rattler Midstream's Dividend

In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Rattler Midstream (1 can't be ignored!) 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.

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