Dividend Investors: Don't Be Too Quick To Buy Sitio Royalties Corp. (NYSE:STR) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Sitio Royalties Corp. (NYSE:STR) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Sitio Royalties investors that purchase the stock on or after the 19th of November will not receive the dividend, which will be paid on the 27th of November.

The company's upcoming dividend is US$0.28 a share, following on from the last 12 months, when the company distributed a total of US$1.90 per share to shareholders. Looking at the last 12 months of distributions, Sitio Royalties has a trailing yield of approximately 8.0% on its current stock price of US$23.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sitio Royalties has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Sitio Royalties

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Sitio Royalties paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Sitio Royalties was unprofitable last year, and sadly its loss per share worsened by 118% on the previous year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sitio Royalties has seen its dividend decline 18% per annum on average over the past two years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

We update our analysis on Sitio Royalties every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Sitio Royalties? It's hard to get used to Sitio Royalties paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering Sitio Royalties as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 1 warning sign for Sitio Royalties and you should be aware of it before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.