Cross Timbers Royalty Trust's (NYSE:CRT) Upcoming Dividend Will Be Larger Than Last Year's

Cross Timbers Royalty Trust (NYSE:CRT) has announced that it will be increasing its dividend on the 13th of August to US$0.12. This takes the dividend yield from 6.8% to 6.8%, which shareholders will be pleased with.

View our latest analysis for Cross Timbers Royalty Trust

Cross Timbers Royalty Trust 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, Cross Timbers Royalty Trust's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

If the company can't turn things around, EPS could fall by 12.8% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 124%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from US$2.55 in 2011 to the most recent annual payment of US$0.84. This works out to a decline of approximately 67% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Cross Timbers Royalty Trust's EPS has fallen by approximately 13% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Cross Timbers Royalty Trust's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Cross Timbers Royalty Trust's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 5 warning signs for Cross Timbers Royalty Trust (of which 1 is significant!) you should know about. We have also put together a list of global stocks with a solid dividend.

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