Viper Energy (NASDAQ:VNOM) Has Announced That Its Dividend Will Be Reduced To $0.53

Viper Energy, Inc.'s (NASDAQ:VNOM) dividend is being reduced from last year's payment covering the same period to $0.53 on the 21st of August. However, the dividend yield of 6.5% is still a decent boost to shareholder returns.

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Viper Energy's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.

EPS is set to fall by 33.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 134%, which could put the dividend in jeopardy if the company's earnings don't improve.

View our latest analysis for Viper Energy

Viper Energy Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Viper Energy has seen EPS rising for the last five years, at 57% per annum. EPS is growing rapidly, although the company is also paying out a large portion of its profits as dividends. If earnings keep growing, the dividend may be sustainable, but generally we'd prefer to see a fast growing company reinvest in further growth.

We should note that Viper Energy has issued stock equal to 63% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Viper Energy is earning enough to cover the payments, the cash flows are lacking. We don't think Viper Energy is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Viper Energy (of which 2 shouldn't be ignored!) you should know about. 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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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.