The board of PHX Minerals Inc. (NYSE:PHX) has announced that it will pay a dividend on the 11th of June, with investors receiving $0.03 per share. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.
Check out our latest analysis for PHX Minerals
PHX Minerals' Payment Has Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. We think that this practice can make the dividend quite risky in the future.
Analysts expect a massive rise in earnings per share in the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 19% which is fairly sustainable.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was $0.14, compared to the most recent full-year payment of $0.12. Doing the maths, this is a decline of about 1.5% per year. 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
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. PHX Minerals' earnings per share has shrunk at 29% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.
PHX Minerals' Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, PHX Minerals has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
About NYSE:PHX
PHX Minerals
Operates as a natural gas and oil mineral company in the United States.
High growth potential with excellent balance sheet.
