PHX Minerals (NYSE:PHX) Will Pay A Larger Dividend Than Last Year At US$0.02

PHX Minerals Inc.'s (NYSE:PHX) dividend will be increasing to US$0.02 on 3rd of June. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

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 PHX Minerals' stock price has increased by 40% 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 PHX Minerals

PHX Minerals Might Find It Hard To Continue The Dividend

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even in the absence of profits, PHX Minerals is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

Recent, EPS has fallen by 32.7%, 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.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from US$0.14 in 2012 to the most recent annual payment of US$0.06. The dividend has shrunk at around 8.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though PHX Minerals' EPS has declined at around 33% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

We'd also point out that PHX Minerals has issued stock equal to 16% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, PHX Minerals has 4 warning signs (and 1 which is a bit unpleasant) 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.