Stock Analysis

Don't Buy Permian Basin Royalty Trust (NYSE:PBT) For Its Next Dividend Without Doing These Checks

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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Permian Basin Royalty Trust (NYSE:PBT) is about to go ex-dividend in just three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Permian Basin Royalty Trust's shares on or after the 25th of February, you won't be eligible to receive the dividend, when it is paid on the 14th of March.

The company's next dividend payment will be US$0.029 per share. Last year, in total, the company distributed US$0.20 to shareholders. Looking at the last 12 months of distributions, Permian Basin Royalty Trust has a trailing yield of approximately 2.1% on its current stock price of $12.01. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Permian Basin Royalty Trust can afford its dividend, and if the dividend could grow.

See our latest analysis for Permian Basin Royalty Trust

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Permian Basin Royalty Trust paid out 98% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances.

Click here to see how much of its profit Permian Basin Royalty Trust paid out over the last 12 months.

NYSE:PBT Historic Dividend February 21st 2022

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Permian Basin Royalty Trust's earnings per share have dropped 10% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Permian Basin Royalty Trust has seen its dividend decline 16% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Should investors buy Permian Basin Royalty Trust for the upcoming dividend? Earnings per share are in decline and Permian Basin Royalty Trust is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Permian Basin Royalty Trust. For example, we've found 3 warning signs for Permian Basin Royalty Trust (1 can't be ignored!) that deserve your attention before investing in the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

What are the risks and opportunities for Permian Basin Royalty Trust?

Permian Basin Royalty Trust, an express trust, holds overriding royalty interests in various oil and gas properties in the United States.

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No risks detected for PBT from our risks checks.

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