North European Oil Royalty Trust's (NYSE:NRT) dividend will be increasing to US$0.14 on 24th of November. The announced payment will take the dividend yield to 5.2%, which is in line with the average for the industry.
North European Oil Royalty Trust Is Paying Out More Than It Is Earning
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 company wasn't making enough to cover what it was paying to shareholders. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
EPS is set to fall by 16.6% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 145%, which could put the dividend in jeopardy if the company's earnings don't improve.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was US$2.20, compared to the most recent full-year payment of US$0.47. The dividend has fallen 79% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though North European Oil Royalty Trust's EPS has declined at around 17% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
North European Oil Royalty Trust's Dividend Doesn't Look Great
Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, North European Oil Royalty Trust has 5 warning signs (and 1 which doesn't sit too well with us) we think you should know about. We have also put together a list of global stocks with a solid dividend.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.