Permian Basin Royalty Trust (NYSE:PBT) Is Paying Out A Larger Dividend Than Last Year

Permian Basin Royalty Trust (NYSE:PBT) has announced that it will be increasing its dividend on the 15th of November to US$0.022, which will be 77% higher than last year. Although the dividend is now higher, the yield is only 2.5%, which is below the industry average.

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 Permian Basin Royalty Trust's stock price has increased by 62% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Permian Basin Royalty Trust

Permian Basin Royalty Trust Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Permian Basin Royalty Trust's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 11.9% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 130%, which is definitely a bit high to be sustainable going forward.

Permian Basin Royalty Trust's Track Record Isn't Great

The company hasn't been particularly volatile, but it has been steadily decreasing which of course is not what investors like to see. Since 2011, the dividend has gone from US$1.39 to US$0.21. Dividend payments have fallen sharply, down 85% 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.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Permian Basin Royalty Trust's EPS has fallen by approximately 12% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Permian Basin Royalty Trust will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Permian Basin Royalty Trust (of which 1 is concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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