North European Oil Royalty Trust's (NYSE:NRT) dividend will be increasing to US$0.15 on 25th of August. This makes the dividend yield about the same as the industry average at 4.8%.
North European Oil Royalty Trust Doesn't Earn Enough To Cover Its Payments
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, the dividend made up 86% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.
EPS is set to fall by 20.9% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 115%, which could put the dividend under pressure if earnings don't start to improve.
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$2.04 in 2011 to the most recent annual payment of US$0.32. Dividend payments have fallen sharply, down 84% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though North European Oil Royalty Trust's EPS has declined at around 21% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think North European Oil Royalty Trust will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for North European Oil Royalty Trust (1 is concerning!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
If you decide to trade North European Oil Royalty Trust, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted
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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.