PHX Minerals Inc.'s (NYSE:PHX) dividend will be increasing to US$0.015 on 3rd of March. Even though the dividend went up, the yield is still quite low at only 1.8%.
PHX Minerals' Distributions May Be Difficult To Sustain
If it is predictable over a long period, even low dividend yields can be attractive. Even though PHX Minerals is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Recent, EPS has fallen by 36.0%, so this could continue over the next year. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from US$0.14 to US$0.06. Doing the maths, this is a decline of about 8.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 36% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
We'd also point out that PHX Minerals has issued stock equal to 54% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
PHX Minerals' Dividend Doesn't Look Great
In summary, investors will like to be receiving a higher dividend, but we have some questions about whether it can be sustained over the long term. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
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, PHX Minerals has 5 warning signs (and 1 which is potentially serious) we think 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.
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