PermRock Royalty Trust's (NYSE:PRT) Upcoming Dividend Will Be Larger Than Last Year's

PermRock Royalty Trust (NYSE:PRT) will increase its dividend on the 14th of January to US$0.07. This will take the dividend yield to an attractive 8.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for PermRock Royalty Trust

PermRock Royalty Trust Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 100% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . 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 18.2% 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 158%, which is definitely a bit high to be sustainable going forward.

PermRock Royalty Trust's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the first annual payment was US$1.55, compared to the most recent full-year payment of US$0.61. The dividend has fallen 61% over that period. 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

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings per share has been sinking by 18% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for PermRock Royalty Trust that investors should know about before committing capital to this stock. 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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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.