PermRock Royalty Trust (NYSE:PRT) Is Increasing Its Dividend To $0.092

PermRock Royalty Trust (NYSE:PRT) will increase its dividend from last year's comparable payment on the 15th of September to $0.092. This makes the dividend yield 8.8%, which is above the industry average.

See our latest analysis for PermRock Royalty Trust

PermRock Royalty Trust's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, PermRock Royalty Trust's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to fall by 8.3% over the next 12 months if recent trends continue. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 86%, meaning that most of the company's earnings is being paid out to shareholders.

PermRock Royalty Trust's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2018, the annual payment back then was $1.55, compared to the most recent full-year payment of $0.79. Dividend payments have fallen sharply, down 49% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Is Doubtful

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though PermRock Royalty Trust's EPS has declined at around 8.3% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

PermRock Royalty Trust's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think PermRock Royalty Trust will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think PermRock Royalty Trust is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for PermRock Royalty Trust (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.