It Might Not Be A Great Idea To Buy Sabine Royalty Trust (NYSE:SBR) For Its Next Dividend

By
Simply Wall St
Published
September 09, 2020
NYSE:SBR

Sabine Royalty Trust (NYSE:SBR) stock is about to trade ex-dividend in 4 days. This means that investors who purchase shares on or after the 14th of September will not receive the dividend, which will be paid on the 29th of September.

Sabine Royalty Trust's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$2.81 per share to shareholders. Calculating the last year's worth of payments shows that Sabine Royalty Trust has a trailing yield of 8.8% on the current share price of $30.16. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Sabine Royalty Trust has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Sabine Royalty Trust

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Sabine Royalty Trust paid out 94% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

Click here to see how much of its profit Sabine Royalty Trust paid out over the last 12 months.

historic-dividend
NYSE:SBR Historic Dividend September 9th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Sabine Royalty Trust's earnings per share have dropped 6.9% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sabine Royalty Trust has seen its dividend decline 1.0% per annum on average over the past 10 years, which is not great to see.

The Bottom Line

Should investors buy Sabine Royalty Trust for the upcoming dividend? Earnings per share are in decline and Sabine Royalty Trust is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Although, if you're still interested in Sabine Royalty Trust and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 1 warning sign for Sabine Royalty Trust that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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