North European Oil Royalty Trust (NYSE:NRT) Is Increasing Its Dividend To US$0.25

The board of North European Oil Royalty Trust (NYSE:NRT) has announced that it will be increasing its dividend by 525% on the 23rd of February to US$0.25. This will take the dividend yield from 3.6% to 5.3%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that North European Oil Royalty Trust's stock price has increased by 53% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for North European Oil Royalty Trust

North European Oil Royalty Trust Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, the dividend made up 94% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

If the company can't turn things around, EPS could fall by 8.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 142%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the first annual payment was US$2.92, compared to the most recent full-year payment of US$0.47. 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 May Be Hard To Come By

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. It's not great to see that North European Oil Royalty Trust's earnings per share has fallen at approximately 8.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

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. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for North European Oil Royalty Trust (1 is significant!) 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 performing dividend stock.

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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.